Durbin: Banks Own Capitol Hill

It's official: Wall Street still runs Washington. The latest example of how our bankrupt oligarchs continue to shape policy is the recently defeated mortgage cramdown amendment. Cramdowns, which would allow bankruptcy judges to renegotiate the value of mortgages, are understandably unpopular with banks and investors who hold securitized mortgages. But as foreclosures mount, driving home prices further down, leaving more and more households underwater on their mortgages, there's certainly a compelling argument to be made for trying to put a floor on housing prices by renegotiating existing mortgages. Households - like banks - need debt reduction. Simply reducing the interest owed via refinancing likely won't be enough to seriously mitigate spiking foreclosures.

Given financiers' deep unpopularity, cramdowns would seem to be a - apologies to George Tenet - political slam dunk: looking out for Main Street rather than Wall Street. But this naive view ignores the enduring power of the banking lobby despite the ongoing banking crisis. And so cramdowns went down. Senator Dick Durbin, who championed the cramdown legislation, was particulary galled by how much influence the bankers retain. Durbin bluntly admitted that:

"the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place".

Is that enough evidence for the New Republic that Wall Street has captured our government?

The Banking Lobby

The banking lobby is digging in to make sure that we learn nothing from this crisis, so they can keep playing their heads-we-win-tails-you-lose game. From Bloomberg:

Alan “Ace” Greenberg, the former Bear Stearns Cos. chief executive officer, said he sees a “very small” chance the Great Depression-era Glass-Steagall Act that separated banking and investment banking could be reinstated.

“Practically you can forget about it, it’s not going to happen,” Greenberg, 81, said today in an interview on Bloomberg Television. “The people who lobbied so extensively for the extinction of Glass-Steagall are still around.”

This is why Simon Johnson talks about the only obstacle to effectively fixing our financial system, since most economists agree temporary nationalization is the best option, is the power of the banking lobby. They really do control the levers of government. If the seemingly endless stream of cash Wall Street has siphoned off from the taxpayers isn't going to be a total waste, we need to put preventive measures in place to guarantee this type of crisis never happens again (at least in our lifetimes, until our children and grandchildren forget our lessons, as we did with the lessons of the Greatest Generation).