Editor's note: This contribution by the late journalist I.F. Stone first appeared in our January 1975 magazine.
Of all the devious tricks practiced by the financial industry—hidden fees, usurious interest rates, and incomprehensible contracts that take advantage of consumers—the campaign strategy for 2010 has to rank right up there.
As the banks begin pouring cash into Congressional elections, they are targeting members of Congress who support consumer protections that could cut into their bottom line.
But here is the kicker: Opponents of financial reform are tarring members of Congress who want to regulate the banks as tools of Wall Street. This Orwellian tactic is designed to confuse voters. In effect, the banks are running against themselves. Look for lots of ads that tie reform legislation to “bailouts,” “fat cats,” “Wall Street,” and “lobbyists.”
“The banks are going to be huge players in the 2010 elections,” says Mary Bottari, director of the Center for Media and Democracy’s Real Economy Project and editor of the website BanksterUSA.org. In Massachusetts, she points out, the financial services industry dumped $450,000 into Scott Brown’s race for Ted Kennedy’s Senate seat, helping Brown to win as a crusader against Wall Street, even as he opposed such basic reforms as a tax on banks to help pay back the bailout.
In January and February she began tracking deceptive ads targeting Democrats in ten states that tie bank reform legislation to “Wall Street bailouts.”
One such television ad in Montana urges voters to contact Senator Jon Tester and tell him to oppose a “$4 trillion bailout” for Wall Street.
The ad, paid for by a group called the Committee for Truth in Politics, begins with ominous music as words appear on a black screen:
“Fat cat lobbyists. Special interests. Lining their pockets at our expense. HR 4173 already passed in the U.S. House.” Photos of House Democrats Nancy Pelosi and Barney Frank flash past. More words appear: “Soon to be considered in the Senate.” Photos of Harry Reid and Chris Dodd standing beside Frank and Pelosi pop up, followed by pictures that move almost too fast to follow: Wall Street, wads of cash, a man smoking a cigar and two men in suits shaking hands in front of the White House, scenes of people out of work, the word “foreclosure” and the figure $4,000,000,000,000. Then more words appear: “The Big Bank Bailout Bill. Lobbyists and Bureaucrats. They play. We pay.” (Photos of ordinary Americans.) “More taxes. Spending. Debt.” (A beleaguered-looking citizen in reading glasses, apparently doing his taxes.) “Call Your Senators” (phone numbers for Senators Max Baucus and Jon Tester). “We won’t be fooled again. EVER.”
In the wake of the financial collapse, it’s no surprise to see political ads that focus on Wall Street and bank bailouts. But wait a minute. HR 4173, also known as the Wall Street Reform and Consumer Protection Act, is the House bill designed to end bank bailouts and create a Consumer Financial Protection Agency. Watchdog Elizabeth Warren has said she is “delighted” with the bill.
And Jon Tester, the Montana Senator who is one of the ad’s main targets, is the only Senate Democrat who voted against the Wall Street bailout and the auto industry bailout.
Tester also authored the Credit CARD Act, which includes such consumer-friendly features as a ban on interest rate hikes for customers who are less than sixty days late paying their credit card bills, and requirements that credit card companies mail out statements earlier, give more notice of fee changes, and make other important information more readily available to consumers.
“I can see why some folks with a lot of money to burn don’t want this bill to pass,” Tester says of the companion legislation to HR 4173 he has been working on in the Senate Banking Committee. “They don’t want it to pass because it finally puts referees on Wall Street.”
The financial reform legislation in the House and Senate would, besides establishing a consumer protection agency, limit the Fed’s authority to pursue future bailouts and empower the government to shut down institutions that overextend themselves through risky financial dealings.
But lately, Tester’s staff has been fielding hundreds of calls from constituents who have been contacted by phone with a recorded message from the Committee for Truth in Politics and then directly connected to Tester’s office, where they are urged to demand that the Senator vote against the “$4 trillion bank bailout.”
“Many callers were relieved—and confused—to learn that Wall Street reform is not a bailout,” Tester says.
In response to all the calls and ads, Tester wrote a letter to the Committee for Truth in Politics, demanding to know “who you are and where your funding comes from.” The letter was addressed to William W. Peaslee and James Bopp Jr.—the lawyers whose names are listed on legal documents associated with the group.
The committee has not responded to Tester’s challenge. When I reached William Peaslee, a former political director of the North Carolina Republican Party, and the sole member of the group’s board of directors, according to the articles of incorporation he filed in North Carolina in 2008, he declined to say anything about his group’s aims.
“I am just the attorney who filed the articles of incorporation,” Peaslee told me.
In fact, Peaslee has been active in Republican politics for some time. His group also ran ads targeting Barack Obama in the 2008 Presidential election. And his colleague James Bopp Jr. is the lawyer for National Right to Life and the architect of the Supreme Court’s recent Citizens United decision. Bopp was the attorney for Citizens United in lower court. Recently, he sued the FEC, saying that the Committee for Truth in Politics should not have to disclose anything about its finances or spending to the government.
I asked Peaslee if he could say anything at all about his group’s political objectives, the ads it is running, or what sort of legislative reform it seeks. Is banking reform his issue?
“I’m not making any representation about whether it is my issue or not,” Peaslee said. “You can send me a list of questions and I will send it along to the people who formed the group and ask if they want to respond. I have no idea if they will or not.”
(No one replied to a list of questions I e-mailed to Peaslee.)
The Committee for Truth in Politics ads are a classic example of “muddying the waters,” says Ken Goldstein, a professor of political science at the University of Wisconsin-Madison and director of the Wisconsin Advertising Project. But there are more ads of this type than ever, he says. “It’s very early, and it’s already very noisy and toxic.”
While the Committee for Truth in Politics is determined to reveal nothing about itself, the ads it is running seem to be taken almost word for word from a memo written by Republican pollster Frank Luntz, leaked to HuffingtonPost, advising Republicans on how to take advantage of the financial crisis:
“Public outrage about the bailout of banks and Wall Street is a simmering time bomb set to go off on Election Day,” Luntz writes in the seventeen-page memo.
He advises Republicans to harness this outrage as they oppose Democrats’ efforts to regulate the banks:
“Ordinarily, calling for a new government program ‘to protect consumers’ would be extraordinarily popular,” Luntz writes. “But these are not ordinary times. The American people are not just saying no. They are saying ‘hell, no’ to more government agencies, more bureaucrats, and more legislation crafted by special interests.”
Republicans, Luntz says, can take advantage of “the simple belief the government cannot effectively regulate the financial markets at any level.”
“Frankly,” Luntz writes, “the single best way to kill any legislation is to link it to the Big Bank Bailout.”
Luntz singles out Representative Barney Frank, citing his big unfavorable ratings as evidence that voters don’t trust Washington.
He advises Republican candidates to use some of the same words and phrases that appear in the TV ads that ran in Tester’s district:
“Bailouts for Wall Street. Government takeovers for insurance companies. Trillions of taxpayer dollars to bail out CEOs and their risky investment schemes. And now Congress is preparing to enact legislation to pass a law with $4 trillion more for bailouts.”
He even advises using the words “never again.”
(Never mind that the Republicans, under President Bush, passed the first massive Wall Street bailout.)
So close is Luntz’s language to the actual ad the Committee for Truth in Politics produced, it seems as though he scripted it.
That’s no coincidence, says Congressman Barney Frank.
“Understand that Luntz’s memo is aimed at the consumer protection agency,” Frank says. “The big financial institutions don’t want consumer protection. This is one of the things they hate the most in the world. That’s their major focus, trying to undermine it.”
Luntz’s clients, by the way, include not just Republican politicians but insurance and financial services companies. Some of the big names, according to a list obtained by Lee Fang of ThinkProgress.org, include subprime lender Ameriquest, American Express, and Bank of America.
All of these firms face greater regulation under the proposed Consumer Financial Protection Agency, which is why lobbying groups like the American Bankers Association oppose the financial reform bills. (A spokesman for the ABA said the group is not part of the Committee for Truth in Politics.) The Chamber of Commerce recently held a press conference to oppose the Consumer Financial Protection Agency and pledged to pour $3 million into ads in six states to fight financial reform. Meanwhile, the banks themselves have been meeting with, and giving money to, Republicans who oppose financial reform.
Minority Leader John Boehner, Republican of Ohio, in an appearance before the American Bankers Association, promised to delay action on financial reform, and told bankers to “stand up” and fight. “Don’t let those little punk staffers take advantage of you,” he said.
Frank shot back with a letter deploring Boehner’s “cheap shot” at Hill staffers. He made buttons for the financial services committee staff that said “little punk staffer.” “They’re mostly gone,” Harry Gural, Frank’s press secretary, told me. “I had a box of them under my desk.”
All of this shows that the banks have “buyer’s remorse” when it comes to electing Democrats, Frank says.
The financial sector has traditionally funded both Democratic and Republican campaigns about evenly. In 2008 the industry helped propel Obama into office. But in 2010 it has substantially shifted its giving to Republicans.
“What happened is when we took power they gave us a lot of money. I made a lot of new friends without getting any nicer,” says Frank. “But they’ve since moved away from us.”
In a widely circulated column headlined “Bankers Get $4 Trillion Gift from Barney Frank,” financial journalist David Reilly sounded the alarm about future bank bailouts.
Although the banks oppose Frank’s bill, “they should cheer for its passage,” Reilly wrote. “It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for ‘no-more-bailouts’ talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health care bill look minuscule.”
Indeed, $4 trillion is a mind-boggling number.
But “right now, the Fed can spend any amount of money,” says Steve Adamske, the House Financial Services Committee staffer who has worked closely on the bill. “David Reilly made the mistake of calling me the other day, and I told him there’s no more irresponsible way to describe that number.”
It is misleading to call the $4 trillion a “bailout,” since it is actually a cap on the amount of money the Fed could pump into a future economic rescue in the event of another financial crisis, Adamske explains. And furthermore, that money would not go to the banks that made risky investments.
In fact, the purpose of the bill is to end bailouts, say Adamske and Frank.
“The Fed can no longer make loans to individual companies,” Frank says.
The $4 trillion number “probably should not have been in there,” he concedes. “It’s kind of a joke—it was just in there to have a number. But it is a limitation, and it’s not a bailout fund for banks. It has nothing to do with bailing out companies. We take away the authority whereby they can bail out companies.”
In the event that a big bank goes down in the future, “shareholders are wiped out, and unsecure creditors are never paid,” Adamske explains. “But we also have to stop the spread of economic calamity. There will be an orderly unwinding of the institution. If you run into trouble and you’re too big to fail, you are history. We’re going to send you to the funeral home. But we are not going to allow the problem to spread.”
That anti-bailout provision of the bill, along with the Consumer Financial Protection Agency, is what consumer advocates like best.
“There are areas we’d like to see strengthened, around regulating derivatives and control of the shadow markets, the casino economy,” says Heather Booth of Americans for Financial Reform. “But Frank fought hard for consumer protection and for the language that says you wind down an institution like AIG. There is no more bailout.”
Still, critics on the left say the Obama Administration and Democrats are not going far enough.
William Black, associate professor of economics and law at the University of Missouri-Kansas City, is an expert on bank deregulation and the savings and loan crisis, former litigation director of the Federal Home Loan Bank, and author of The Best Way to Rob a Bank Is to Own One.
Black has been an outspoken critic of both the Bush and Obama Administrations’ handling of the financial crisis, as well as Wall Street’s influence on Congress.
On the Real News Network, he recently observed that the House Financial Services Committee has grown so large precisely because freshmen members of Congress vie to get on it in order to cash in on the big contributions financial institutions dole out to committee members’ campaigns.
The claim that the bills contain a massive bank bailout is “simply made up,” he says. But there are other problems. “If you do everything they wanted, it still wouldn’t have prevented the last crisis nor will it prevent a future crisis.”
“The fundamental mistake of the Administration is to put so many eggs in the legislative basket. Ninety-five percent of the problem could have been fixed by regulating with no new legislation. Instead they left in place Bush’s wrecking crew—Geithner and Bernanke,” says Black, referring to the Treasury secretary and Fed chairman. “We’re now coming up on one year and a quarter and it’s really astonishingly bad, in the financial field, who has been appointed. We could have fixed this months ago.”
Black is for breaking up what the Administration calls “systemically important” institutions.
“It’s nuts to keep this system going,” he says.
As for the Committee for Truth in Politics: “One has more than a sneaking suspicion that the people behind this are the enemies of effective regulation.”
But if the banks have their way, not only will the system keep going, even modest consumer protections will be thwarted—with the help of voters who are confused about whether their legislators are punishing or coddling the big banks.
Ruth Conniff is the political editor of The Progressive magazine.