Here’s issue #33 of my Policy and Politics Newsletter, written 5/31/12. The previous issue of the newsletter laid out the rationale and need for strong regulation of the six big banks that dominate the industry. It closed by noting that JPMorgan Chase’s recent multi-billion dollar loss from securities trading has re-focused attention on bank regulation. This issue of the newsletter takes a look at the response to the JPMorgan loss.

The over $2 billion trading loss at JPMorgan has strengthened support for the Volcker Rule, which bans speculative and risky proprietary trading by banks. It has reinvigorated the discussion about financial institutions that are “too big to fail.” The six biggest US banks are bigger now than they were before the recent financial collapse and have assets ($9.5 trillion) equal to 2/3 of the entire US economy. Many believe that the collapse of any one of them would trigger events that would cripple the US economy. Therefore, despite the provisions of the Dodd-Frank law that state there will be no future bailout, many find it hard to believe that a bailout wouldn’t happen because these huge banks truly are too big to fail. [1]

Opponents of stronger bank regulation will characterize the push for the Volcker Rule and splitting up the six big banks as an attack on successful businesses, business people, and the wealthy. But JPMorgan CEO Dimon’s own reputation disproves this. Until the current fiasco, he and his leadership at JPMorgan had been praised and celebrated. The call for strong regulation is not an attack on success or wealth, but on bad and unethical business practices, failures of risk management, greed, and bad judgment that harm the public good. [2]

Because of the historical inability of these banks to control risk, as was just demonstrated by the best of them, and because of the inability of government to effectively regulate, oversee, and hold accountable these extremely large, complex, and powerful financial corporations, many experts are arguing that breaking them up into smaller entities is the only real solution. These experts include four regional Federal Reserve presidents and the head of research at one of the regional Federal Reserve banks. [3]

One example of the power of these banks and the conflicts of interest that exist in our financial system is that JPMorgan CEO Dimon sits on the Board of the Federal Reserve Bank of New York. Among other responsibilities, it regulates and oversees JPMorgan and the other Wall Street banks. Many experts see this as a major conflict of interest and are calling on him to step down. For example, Simon Johnson (professor at MIT’s Sloan School of Management and former chief economist of the International Monetary Fund) says, “he should, under these circumstances, absolutely step down from that role. It’s completely inappropriate to have such a big bank represented in this fashion.” [4]

Our current recession and financial crisis were caused by bad risk management, unethical business practices, and greed at our large financial institutions coupled with a failure of government oversight, enforcement, and regulation. The result has been high unemployment, extensive loss of homes and home value, and large losses of revenue for governments at the federal, state, and local levels. The bailout of the financial industry and the steep loss of revenue due to the recession are major factors contributing to the large federal government deficit with which we are struggling.

The big banks are working hard to weaken and delay (if not prevent) the implementation of the Volcker Rule and support for it. I am amazed they have any credibility to lobby against regulation after the financial debacle and recession they just caused. Some of their supporters, including in Congress, appear to have an ideology that corporations can do no wrong and that there is no such thing as a good regulation. Others, I believe, are swayed by the large campaign contributions from the financial sector and the new potential of unlimited spending by it through Super PACs.

The Volcker Rule is needed to prevent proprietary trading losses, like the one just experienced at JPMorgan, from seriously impacting our banking system, our federal government, and our economy. It is one, critically important step in regulation and oversight of our financial system that is necessary to reduce and, hopefully eventually eliminate, the potential for too big to fail banks again requiring a taxpayer bailout and crashing our economy.

[1]       Moyers, B. & Johnson, S., 5/17/12, “Are JPMorgan’s losses a canary in a coal mine?” Common Dreams

[2]       Editorial, 5/15/12, “Dimon in the rough,” The Boston Globe

[3]       Rohde, D., 5/11/12,  “Break up the big banks,” Reuters

[4]       Moyers, B. & Johnson, S., see above



Here’s issue #32 of my Policy and Politics Newsletter, written 5/29/12. JPMorgan Chase’s recent multi-billion dollar loss from securities trading has focused attention on the regulation of our large banks. This issue of my newsletter and the next one take a look at this issue.

The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010. Its goal was to put an end to practices in the financial industry that led to the 2008 collapse of the financial sector and our economy.

One of its goals was to prevent speculative securities trading by banks that many equate to gambling with taxpayers’ money. This trading, called proprietary trading, enhances banks’ profits (when things go right) and senior managers’ bonuses, but do not benefit or serve bank customers. The Volcker Rule, named after former Chairman of the Federal Reserve (under Presidents Carter and Reagan), Paul Volcker, who proposed and supports it, is the specific piece of the Dodd-Frank law that bans such trading by banks. It would reinstate a key provision of the Glass-Steagall Act, put in place after the Great Depression but repealed in 1998, that required separation of banking from proprietary trading.

The reason for separating banking and proprietary trading is that banking is protected and supported by the federal government to ensure the safety of depositors’ money. Banks’ deposits are insured by the Federal Deposit Insurance Corporation (FDIC) and banks have access to very low cost funds from the Federal Reserve. Proprietary trading is speculative and risky, providing potentially big gains and big losses to the banking corporation and its executives. If a bank, while protected and supported by the government, is allowed to engage in proprietary trading, this amounts gambling with taxpayers’ money. [1] And as we have just experienced, banks that are “too big to fail” will receive bailouts using taxpayer funds if their bets go bad.

During the process of writing the Dodd-Frank law, and now during the writing of regulations to implement the law, including the Volcker Rule, the financial industry from Wall Street has worked tirelessly to water down, delay, complicate, and confuse the process. [2] Using legions of lawyers and lobbyists, large campaign contributions, media campaigns, and friends in Congress and the Executive Branch (some who have traveled through the revolving door of moving between financial industry and government jobs), Wall Street works to add provisions and loopholes that complicate the result, and to undermine support for reform. Those working to create solid regulation and limitations try to write provisions that allow reasonable activities but close loopholes, knowing that after the fact the financial institutions will exploit any loopholes they can find.

The Volcker Rule’s ban on proprietary trading by banks only significantly affects the six biggest banking corporations, [3] as they are the ones who engage in extensive proprietary trading. Proprietary trading is not an essential banking activity and it creates a conflict of interest between the bank and its customers. The other 20 regional banks and 7,000 community banks are generally supportive of the Volcker Rule but find it “impossible … to challenge” the six big banks on this issue. The Volcker Rule is scheduled to go into effect in July 2012, but the banks have managed to get a two year delay and will have until 2014 to comply. [4] Two of the six big banks, Goldman Sachs and Morgan Stanley, got their banking licenses during the recent financial crisis specifically to reassure their depositors that their deposits were protected by the FDIC and to get access to support from the Federal Reserve. [5]

The recent $2 billion plus proprietary trading loss at JPMorgan Chase really grabbed everyone’s attention because JPMorgan is touted as having the best risk management in the industry. Its highly regarded CEO, Jamie Dimon, has been leading the charge against the Volcker Rule, claiming it is unnecessary. [6] If proprietary trading at JPMorgan in calm financial markets could result in such a big loss, many are wondering how great the current risk of huge losses at other banks might be, let alone what it would be when financial markets are more volatile.

The next issue of my newsletter will cover the response to this JPMorgan trading loss.

[1]       Silver-Greenberg, J., &Schwartz,N.D., 5/17/12, “JPMorgan losses reportedly up $1b,” The Boson Globe

[2]       Taibbi, M., 5/24/12, “How Wall Street killed financial reform,” Rolling Stone

[3]       The six biggest banks are JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley. They average $1.6 trillion in assets.

[4]       Rohde, D., 5/11/12,  “Break up the big banks,” Reuters

[5]       Moyers, B., with Volcker, P., 4/5/12, “Gambling with your money,” Moyers & Company on National Public Radio

[6]       Gogoi, P., 5/15/12, “Dimon likely to face ire, not ouster at JPMorgan meeting,” The Boston Globe


Here’s issue #31 of my Policy and Politics Newsletter, written 5/20/12. Just about everyone is concerned about the political and policy gridlock in our federal government. This issue of the newsletter takes a look at why this is happening.

The Washington Post published an article on April 27 that is the best piece I’ve seen on why we are experiencing gridlock in Congress. It’s entitled, “Let’s just say it: The Republicans are the problem.” [1] It is important to know that it is co-written by two scholars from two institutions that tend to have different, if not opposing, perspectives. Thomas E. Mann is at the Brookings Institution, which is often described as centrist or liberal leaning. (However, I don’t think it has ever been called progressive or aligned with Democrats.) Norman J. Ornstein is at the American Enterprise Institute, which is almost invariably described as conservative and is often seen as aligned with the Republican Party.

In the article, they state, “We have been studying politics and Congress for more than 40 years, and never have we seen them this dysfunctional. In our past writings, we have criticized both parties when we believed it was warranted. Today, however, we have no choice but to acknowledge that the core of the problem lies with the Republican Party.” They describe the Republican Party as “an insurgent outlier … ideologically extreme; scornful of compromise; unmoved by conventional understanding of facts, evidence, and science; and dismissive of the legitimacy of its political opposition.”

The authors note that both parties have moved away from the center, the Democrats in large part because of the loss of conservative, southern Democrats. They use a football metaphor, where the 50 yard line is the center, to describe the current situation: “While the Democrats may have moved from their 40 yard line to their 25, the Republicans have gone from their 40 to somewhere behind their goal posts.” (The goal line is the 0 yard line and the goal posts are actually 10 yards behind the goal line.)

They identify two individuals as key movers in the shift in the Republican Party: Newt Gingrich (Republican Representative from Georgia in Congress from 1979 to 1999) and Grover Norquist (president and founder in 1985 of Americans for Tax Reform). They state that “the forces Gingrich unleashed destroyed whatever comity existed across party lines, activated an extreme and virulent anti-Washington base … and helped drive moderate Republicans out of Congress.” Norquist created the Taxpayer Protection Pledge where signers pledge never to support a tax increase even to close a loophole. Currently, 238 of 242 Republicans in the House and 41 of 47 Republican Senators have signed the pledge. Mann and Ornstein note that this pledge, and others that it has led to, “make cross-party coalitions nearly impossible.”

They note that bipartisan groups “propose solutions that move both sides to the center, a strategy that is simply untenable when one side is so far out of reach,” and that “In the first two years of the Obama administration, nearly every presidential initiative met with vehement, rancorous and unanimous Republic opposition … followed by efforts to delegitimize results and repeal the policies.” Republicans have voted against measures that they co-sponsored to deny President Obama anything that might look like progress.

Procedurally, particularly in the Senate, progress has ground to a near halt. “The filibuster [2] … became a routine weapon of obstruction.” The confirmation process for presidential nominees has also been “abused … to block any and every nominee,” including to “posts such as the head of the Consumer Financial Protection Bureau, solely to keep laws … legitimately enacted from being implemented.”

Mann and Ornstein critique the media, noting that they understand journalism, “But a balanced treatment of an unbalanced phenomenon distorts reality.” They advise the press, among other things, to “stop lending legitimacy to Senate filibusters by treating the 60-vote hurdle as routine. The framers certainly didn’t intend it to be. Report individual senator’s abusive use of holds [on presidential nominations] and identify every time the minority party uses a filibuster.”

In closing, they note that “If our democracy is to regain its health and vitality, the culture and ideological center of the Republican Party must change.”

[1]       Mann, T.E., andOrnstein,N.J., 4/27/12, “Let’s just say it: The Republicans are the problem,” The Washington Post. Adapted from their book “It’s even worse than it looks: How the American Constitutional system collided with the new politics of extremism.”

[2]       A filibuster requires a super-majority of 60 out of 100 votes to end debate and allow a vote on passage of a bill or other matter.


Here’s issue #30 of my Policy and Politics Newsletter, written 5/15/12. The US government budget process and the elections in Europe have focused attention on how government can best spur economic recovery.

There are basically two schools of thought on how governments can spur economic recovery:

  • Austerity: cut spending, raise taxes, and have tight monetary policy (i.e., high interest rates)
  • Stimulate: increase or maintain spending, cut taxes, and have loose monetary policy (i.e., low interest rates)

The theory behind the austerity approach is that it will spur consumer and business confidence so they will increase spending and grow the economy. In addition, government spending and borrowing (i.e., deficits) take money out of the private economy. The theory behind the stimulate approach is that when consumers and the private sector are not spending enough to grow the economy, the government should step in and spend, even if it creates deficits in the short run.

In the short run, cuts in government spending eliminate jobs, either those of public sector workers or those of the workers who provide the goods or services purchased. Those goods and services may be purchased directly by governments (e.g., military equipment or construction of highways) or by the beneficiaries of government benefits (e.g., purchases by those receiving unemployment benefits or food stamps). In the US, the public sector, primarily state and local governments, are laying off about 10,000 workers a month because of reduced spending. This hurts efforts to reduce unemployment and the economic recovery.

On the other hand, government spending does create jobs; the best estimates are that the 2009 federal stimulus package created roughly 3 million jobs and kept the unemployment rate 2% lower than it would have been otherwise. (See newsletter #26, Economic Recovery: How and for Whom.)

In the US, the federal government initially took the stimulate approach, increasing spending and cutting taxes while moving interest rates to near zero to stimulate business and consumer borrowing. Now, the approach is shifting toward austerity with calls for reducing the federal deficit by cutting spending as evidenced by the budget deal last August and the budget recently passed by the House.

In the Eurozone and Great Britain, the austerity approach was adopted. The 17 Eurozone countries have slipped back into recession and Britain is tottering on the edge of recession, while the US has seen slow growth for eleven consecutive quarters. As Paul Krugman puts it, “the confidence fairy doesn’t exist – … claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the last two years.” [1]

Although everyone agrees that the US government must address its deficit, the question is when. Many economists and Federal Reserve officials believe that austerity now would hurt the US economy and that we should stimulate the economy first and tackle deficits after the economy strengthens. [2] Keep in mind that when the economy strengthens, more jobs, more production, and more sales will increase tax revenues and automatically begin to reduce the deficit.

The evidence seems pretty clear, both from current experience and the Great Depression, that in the short run austerity doesn’t work and that government spending spurs job creation and economic recovery. However, it appears that ideology is overwhelming the facts in both the US and Europe.

[1]       Krugman, P., 5/7/12, “Those revolting Europeans: How dare the French and Greeks reject a failed strategy!” The New York Times

[2]       Fitzgerald, J., 5/13/12, “Austerity vs. stimulus debate revived by elections inEurope,” The Boston Globe


Here’s issue #29 of my Policy and Politics Newsletter, written 5/9/12. It continues from the previous issue the arguments supporting local resolutions calling for the overturning the Supreme Court’s Citizens United decision.

With the 2012 election season underway, the consequences of the Citizens United decision are becoming clear. The unlimited, super political action committee or “Super PAC” spending has already exceeded $100 million. Ninety percent of this money is coming from roughly 500 wealthy individuals or corporations, meaning that they are largely drowning out the voices of the other 300 million people in the US. The Super PACs are out-spending the candidates’ campaigns. This is a real concern because it means that the campaign is out of the control of the candidates and that it is very difficult to hold this spending to any standard of accountability, for example for the accuracy of their campaign ads. The majority of this spending, 86% according to one tabulation, [1] is negative, i.e., targeting an opponent. Negative advertising demeans candidates and our political process. It turns voters off, which, along with the growing voter perception that the huge amounts of money in the campaigns mean that their vote doesn’t matter and that the system is corrupt, reduces voter turnout. [2] Moreover, the amount spent to date is a drop in the bucket compared to the hundreds of millions of dollars that these Super PACs have stated they will raise and spend during the 2012 election period.

Corporate spending is the big concern because corporations have far greater resources than all other sources combined. Even before Citizens United, 72% ($3.4 billion) of all federal campaign contributions in 2007 – 2010 came from the business sector (individuals and organizations), with labor contributing 4% ($172 million), ideological groups 7% ($308 million), and others 17%. In addition, corporations exert substantial influence in other ways, such as lobbying ($3.3 billion in 2011) and the revolving door (e.g., Obama’s Secretary of the Treasury and his 3 chiefs of staff all came from the financial industry, which has gotten very favorable treatment in the wake of the financial collapse and recession it caused).

Some people argue that unions provide a counter-balance to corporate spending, but past spending and a comparison of overall resources indicate otherwise. Furthermore, union membership in the private sector has dropped from 34% in the 1950s to under 7% today. Clearly, the corporations are winning this battle.

With unlimited corporate funds now unleashed, we can expect even greater business sector dominance. The Citizens United decision dramatically expands potential spending and, therefore, concerns that elected officials will be more responsive to contributors and their money than to constituents. The 15 largest corporations in the US have annual revenues of $2 trillion and annual profits of $146 billion. If just these 15 spent only 1% of their annual profits on campaigns, they would spend more than twice what the Obama and McCain campaigns combined spent in the last presidential election.

Citizens all across the country are concerned that unlimited campaign spending by corporations and wealthy individuals will mean that our elections won’t be a fair fight. 79% of the public supports a Constitutional Amendment to overturn Citizens United, including over 2/3 of Republicans and over 80% of Democrats and Independents. Over 1,000 business leaders formally support overturning Citizens United and there has been unusual criticism from state and other federal judges. The Montana Supreme Court upheld the state’s 1912 law limiting corporate spending in campaigns, despite a lower court ruling that Citizens United had invalidated the law in question. The 2nd U.S. Circuit Court of Appeals similarly upheld aNew York City law that places limits on political contributions.

With unlimited corporate campaign spending unleashed, government of, by, and for the people is truly at risk. If, as the Citizens United decision asserts, money equals speech, then those with no money have no voice. This flies in the face of the principles of our democracy and the Constitution that our founders wrote. It is essential that citizens everywhere make their voices heard loudly and clearly to build the incredible momentum that will be necessary to overturn the Citizens United decision.

[1]       Fowler, E., 5/2/12, “Presidential Ads 70% Negative in 2012, Up from 9% in 2008,”

[2]      Kroll, A., 4/24/12, “Poll: Super-PACs will hurt voter turnout in 2012,” Mother Jones


Here’s issue #28 of my Policy and Politics Newsletter, written 5/6/12. It describes an action step – local resolutions – being taken around the country to work toward overturning the Supreme Court’s Citizens United decision.

As you probably remember, in January 2010, the US Supreme Court, in a five-to-four decision on Citizens United v. Federal Election Commission, ruled that corporations, unions, and other groups have the same freedom of speech rights as are granted toU.S. citizens under the Bill of Rights. The court expanded on previous rulings that spending money is considered “speech” and held, for the first time, that limiting campaign spending by corporations, unions, and others would violate their freedom of speech rights. It struck down key provisions of the bipartisan McCain-Feingold campaign finance law, despite its being upheld by the Supreme Court in 2003, and overturned the 1907 law banning corporate contributions.

In response, many communities and some states have passed resolutions that call for overturning the Citizens United decision. This can only be done through a Constitutional Amendment or by the Court reversing itself (which doesn’t seem at all likely). In my home town ofReading,Massachusetts, we just passed such a resolution. Here’s an overview of it and how it happened. Perhaps this will be valuable to you if you should get the opportunity to be involved in such an effort.

A group of residents got together and decided that we wanted to present a Citizens United resolution in our town. We drafted a resolution based on what had passed in another town in Massachusetts, which was a short and simple version of the draft resolution on the Move to Amend website. [1] The resolution states that:

  • Free speech rights belong to people not corporations or other organizations, and
  • Unlimited spending by corporations and others in our elections presents a real danger to our democracy because they can drown out the voices and interests of ordinary citizens.

The resolution calls:

  • On Congress to pass an amendment to our Constitution to clearly establish that money is not the same as speech, and that only human beings are entitled to constitutional rights such as free speech, and
  • On our state Legislature to pass a resolution calling for such a Constitutional amendment.

We first approached our Board of Selectmen (which may be a Town or City Council where you live). The process will vary, but our Selectmen recommended that we petition to have the resolution on the agenda for our Town Meeting (this is probably unique to New England). We got the handful of signatures required and the resolution became an official agenda item. At Town Meeting, I started off with a short, 10 minute, Power Point presentation to initiate the consideration of the resolution.

One objection to the resolution, even from some who supported its content, was that it was not an appropriate matter for a local governmental body. There are three key responses to this argument:

  • This is a local issue because corporations or others could spend unlimited money to elect or defeat local candidates or on a local ballot question. For example, if a developer wanted officials or a zoning change that would allow a development project, it could spend unlimited money to achieve that goal.
  • Only a huge groundswell of citizens voices from the local level on up will overcome the resistance and inertia of corporateAmericaand our political system.
  • Hundreds of communities across the country have felt it was appropriate to consider and pass resolutions that call for overturning the Citizens United decision. And the number is growing rapidly. InMassachusetts, the number is now 34 with 14 added this week.

The next issue of the newsletter will present other arguments that support such a resolution. If you would like a copy of the actual resolution or the Power Point slides and talking points I used, please email me.

[1]       Move to Amend ( is one of the organizations leading the fight to overturn the Citizens United decision. There is lots of information and tools to support local action at its website. Common Cause ( and its Amend 2012 project ( are also leaders of this effort.