Monday, January 25, 2010

Obama and the Banks

By William Fisher

On the heels of a stinging defeat in the Massachusetts Senatorial race that dealt a major blow to passage of health care legislation, President Obama abruptly pivoted yesterday to change the subject to the state of the U.S. economy and to back sweeping regulatory reforms on “too big to fail” banks.

The president noted that it was those “too big to fail” banks that brought the U.S. financial system to the brink of total collapse a year ago by taking “reckless risks” to generate profits and bonuses.

Clearly struggling to channel the populist anger sweeping the country, he proposed legislation that would govern how big the big banks can become and what lines of business they would be permitted or forbidden to run.

Bank holding companies – which include the major commercial and investment banks – would be prohibited from engaging in the hedge fund or private equity fund fields.

The legislation Obama outlined would also seek to place limits on industry consolidation. It would achieve this by curbing the growth of the market share of liabilities at the biggest firms. The New York Times reported that an existing cap, put in place in 1994, put a limit of 10 percent on the share of insured deposits that can be held by any one bank. That cap would be expanded to include liabilities other than deposits.

Bank Holding Companies would also be barred from proprietary trading – using bank funds to invest on behalf of their own accounts, often resulting in banks taking investment positions against the interests of their shareholders.

Calling this “the Volcker Rule,” the president said commercial banks needed to get back to their core business -- taking customers’ deposits and lending money. Former Federal Reserve chairman Paul A. Volcker has long advocated this position.

Volker -- who reportedly fell out of favor with Treasury Secretary Tim Geithner and former Treasury secretary Larry Summers, now chairman of the president’s National Economic Council -- has long championed barring commercial banks from using deposits to finance trading in financial securities such as mortgage-backed securities. The losses sustained by commercial banks active in this kind of trading is generally thought to be a major cause of the 2008 crash and subsequent taxpayer bailout.

Most of the regulatory changes Obama proposed require legislation by Congress. This will not be easy, particularly since Republicans have already telegraphed their intention to oppose change – and since, as of Tuesday, the Democrats have lost their filibuster-proof 60-vote majority.

That loss came in the defeat of Democrat Martha Coakley in her quest to win the Senate seat occupied by the late Ted Kennedy for decades. Victory in the race went to Scott Brown, a conservative Republican, who bragged about being the Republicans’ 41st vote against the health care bill. He will be the 41st Republican in the senate, reducing the Democratic caucus to 59. Major legislation in the senate usually takes a super-majority of 60 votes to pass.

In a reliable poll, conducted the morning after the election, fifty-one percent of those Obama supporters backing Brown "said that Democratic policies were doing more to help Wall Street than Main Street."

In an interview with ABC News, Obama said Americans have a "feeling of remoteness and detachment" from Washington. "I think we lost some of that sense of speaking directly to the American people about what their core values are and why we have to make sure those institutions are matching up with those values," he said.

Last week, Obama said the American people provided "extraordinary assistance" to the financial industry and "continue to face real hardship in this recession." Yet at the same time, Wall Street is expected to dole out a record $145 billion in bonuses to its employees this year.

"Instead of sending a phalanx of lobbyists to fight this proposal, or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities. And I'd urge you to cover the costs of the rescue not by sticking it to your shareholders or your customers or fellow citizens with the bill, but by rolling back bonuses for top earners and executives," Obama said.

Predictably resisting the kinds of changes Obama proposed, the banking industry warned of its opposition. But Obama evidently anticipated that reaction. He said he expected an “army of industry lobbyists” to fight his proposals. “If these folks want a fight, it’s a fight I’m ready to have,” he declared.

The president also pushed the establishment of a Consumer Financial Protection Agency, to regulate financial products including credit cards and mortgages.

Scott E. Talbott, the chief lobbyist for the Financial Services Roundtable, which speaks for most of the major lenders and insurance companies, said the Obama proposals would “reduce liquidity and increase risk.” He added, “That is the direct opposite of the goals we want to achieve.”

Bank lobbyists also attacked the proposed CFPA. "Maybe the administration will decide that they want to turn this into a partisan battle but, coming out of health care, I don't think the majority of senators want to have a partisan battle," said Edward L. Yingling, president of the American Bankers Association. "They want a bipartisan bill."

But Harvard law school professor Elizabeth Warren, chair of the Congressional Oversight Panel created to oversee the banking bailouts, has said that without the CFPA, "the tag on U.S. financial regulation reform may as well say 'Made on Wall Street'" and is "the best indicator of whether Congress will reform Wall Street or whether it will continue to give Wall Street whatever it wants."

And New York Times columnist Paul Krugman proposed “a simple solution” for passing CFPA and other financial reforms: Make Republicans (or Democrats) vote against it. "Expose the hollowness of their populist posing," Krugman wrote. "In short, take on the banks -- and force those who are covering for them into the open."

But many expert observers of the current recession feel that little will be achieved in the way of financial services regulation until lobbyists’ money is removed from the political landscape.

One such observer is Dr. Jack N. Behrman, emeritus professor at the University of North Carolina business school, who served as JFK’s Assistant Secretary of Commerce for Domestic and International Business. He told Truthout, “No Congressional campaign funds should be permitted to or through either party organization, and lobbying should be permitted only where no funds are involved -- merely persuasion. PLUS -- no Congressman would be allowed to become a lobbyist until four years after retirement.”

The already favorable lobbying environment for the financial sector may become even more favorable as a result of Thursday’s 5-4 Supreme Court decision. The five Conservatives on the court ruled that corporations, as persons, have free speech rights. And since money is considered speech, spending limitations cannot be placed on corporations. The decision means that significant parts of the McCain-Finegold law limiting campaign contributions by corporations are unconstitutional. Corporations – including businesses, labor unions and not-for-profits – will now be free to spend as much money as they wish in support of specific candidates in Federal elections.

Anticipating reduced profitability in the financial sector, bank stocks fell sharply on Wall Street. Investors read in The Wall Street Journal that Obama’s “goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces."

The article above originally appeared in

About Indefinite Detention…

By William Fisher

President Obama’s decision to detain 47 of the just-under 200 remaining prisoners at Guantánamo without trial indefinitely is drawing scorn from legal experts and human rights advocates, who charge that the government simply does not have enough evidence to convict the detainees it says can not be tried but are “too dangerous to release.”

Typical is this comment from David Frakt, a Lieutenant Colonel in the US Air Force Judge Advocate General (JAG) Corps Reserve, Associate Professor and Director of the Criminal Law Practice Center at Western State University College of Law in Fullerton California. He is former lead counsel for the Office of Military Commissions Defense, who successfully represented Mohammed Jawad before the military commissions and won his release in habeas corpus litigation in 2009.

Frakt told IPS, “The administration's suggestion that they can't try 47 detainees, not because they don't have evidence of criminal wrongdoing, but because a criminal trial would necessarily involve disclosure of classified information, defies common sense.”

He gave three reasons.

“First, both under the Military Commissions Act of 2009 and under the Classified Information Protection Act (CIPA), in use in federal courts, there are elaborate mechanisms in place to protect classified information.”

“Second, given that the remaining detainees at Guantanamo have been held, on average, for over seven years, the likelihood that there is an ongoing need to protect classified sources and methods in such cases is remote.”

“Finally, it is hard to believe that there would be any greater risk of revealing important classified information than in the 9/11 trial, yet the administration is pressing forward with this and several other cases against high-value detainees who were kept in secret CIA ghost prisons and subjected to still classified methods of interrogation. The administration has acknowledged the right of all detainees to petition for habeas corpus in federal court. Why does the administration seem to believe classified information could be adequately protected in federal habeas litigation, but not in a criminal trial? It seems far more likely that there is simply inadequate admissible non-coerced evidence of criminality,” Frakt said.

Other legal scholars have weighed in with similar views. For example, Brian J. Foley, Visiting Associate Professor at the Boston University School of Law, told IPS, “ Many of the Executive's claims about danger and terrorism have been shown to be incorrect over the years. Last week's incident where an plane bound from New York to Kentucky was diverted for an emergency landing in Philadelphia because passengers freaked out when they saw a Jewish teenager engaging in an Orthodox prayer ritual, and the recent hours-long shutdown of Kennedy airport because a man from earthquake-ravaged Haiti mistakenly opened an emergency door in a terminal, show that our officials are over-reacting and cowardly.”

He said, “The Executive's claim that these people are 'too difficult to prosecute' really means that the Executive knows that the only evidence it has is weak or was obtained by coercion and is therefore very likely false.”

He added, “The Executive is afraid that the public will see what it has been up to, i.e., torture and fearful over-reaction. There are terms for this: cover-up and abuse of power come to mind. Shine the sunlight on these wretched, illegal, cowardly practices, and prosecute the people responsible for them - including members of the Obama Administration if they continue this cover-up and abuse of power.”

The American Civil Liberties Union (ACLU), always a major player in the Guantanamo detention issue, called the Obama policy “un-American.”

Jonathan Hafetz, a senior ACLU lawyer, told IPS, "By committing to hold suspected criminals indefinitely without charge, the Obama has embraced one of the most lawless and un-American policies of the Bush administration, one that turns the most fundamental principles of the Constitution on their head. The notion that the government can simply hold those it believes "dangerous", without putting them on trial, will ultimately serve neither our liberty nor our security."

And Chip Pitts, president of the Bill of Rights Defense Committee, asked, “How is this any better than Guantanamo itself and the spur such approaches give to al Qaeda?”

He told IPS, “No legal system worthy of the name can possibly imprison people indefinitely on the shameful argument that they are, in the absence of evidence and a fair trial, ‘too dangerous to release’.”

He called the move a “significant calcification of the lawless Bush approach of holding (often tortured) detainees indefinitely -- effectively, perhaps for life -- until the conclusion of some endless ‘war on terror’,” but said it is “actually undermining vital cooperation from European and Muslim allies, support for the rule of law itself and our country’s national standing and historical legacy.”

In a statement, Amnesty International USA, said, “Indefinite detention. There’s been talk about people who can’t be tried but who are too dangerous to release. This is absurd. People must either be charged with a crime and given a fair trial, or be released. End of story. That’s the way it works. Either there’s evidence against you or there isn’t.”

And Virginia Sloan, president of the widely respected Constitution Project, said, “Even if the Obama administration continues to work to close Guantánamo, by pursuing a policy of indefinite detention without charge, the damaging policies that embody the prison will continue, as will the negative effects to American values, the rule of law, and our nation’s reputation abroad.” She urged opposition to the use of military commissions.

The planned closing of the iconic prison facility on the island of Cuba has been, at the same time, one of the Obama Administration’s signature issues and most serious embarrassments. On his first day in office, the new president issued an executive order to close the prison by January 2010. That deadline has now been missed, as congress refuses to accept detainees even for trial in U.S. civilian courts and countries remain reluctant to accept them for resettlement.

For the past year, Justice Department lawyer Matthew G. Olsen has been leading a Task Force of national-security and law-enforcement officials who have been reviewing the files for each GITMO detainee. The review included an evaluation of any evidence against each man, how serious the threat would be if the detainee was released, and the government chances of prosecuting each prisoner successfully. The groups were then evaluated under the direction of Attorney General Eric H. Holder Jr.

But the process does not provide all the answers. For example, about 30 of the prisoners scheduled to be transferred to other countries are Yemenis. But transfers to Yemen have been halted following the attempted bombing of a Detroit-bound airliner on Christmas day. It is believed that this plot was developed by a Yemeni affiliate of Al Qaeda.

Holder is also charged with deciding whether those to be prosecuted should face a civilian trial or a military commission. He has announced that five detainees would face a military commission and five others — including Khalid Shaikh Mohammed, the self-described mastermind of the terrorist attacks of Sept. 11, 2001 — would be tried in civilian court. It is unclear what criteria the government uses to decide between military commissions and civilian courts.

Well done, Mr. Kennedy!

By William Fisher

OK, if you really read Mr. Justice Kennedy's opinion for the Supreme Court's majority in the Citizens United case, you just have to agree with his reasoning.

No one wants to limit free speech. It would be unconstitutional! The First Amendment is one of our proudest achievements.

So of course, if corporations are just like individual persons, they ought to enjoy exactly the same free speech rights as the rest of us do. No more, no less.

Right! But wait just a minim here folks. How did corporations get to be persons?

It seems sort of counter-intuitive. After all, corporations don't serve in the armed forces defending our country. They don't show up for jury duty. They don't marry and have kids and mortgages. They don't vote. In fact, come to think of it, they don't do almost all the things people do.

So how did they ever get to be people?

So I read the Constitution. And I couldn't find a word about corporations being people.

As a non-lawyer, I then figured there must be a bunch of legal eagles somewhere in the picture. Maybe one of those pesky activist judges.

So I looked.

What I learned from Wikipedia was that back in 1886, there was a case that went to the Supreme Court called Santa Clara County v. Southern Pacific Railroad Company. Before this case was argued, Supreme Court Justice Morrison Remick Waite simply pronounced, as follows:

The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of opinion that it does.

Thus, Wikipedia tells me, "the doctrine of corporate personhood, which subsequently became a cornerstone of corporate law, was introduced into this 1886 decision without argument."

And then the court reporter duly entered into the summary record of the Court's findings that:

The defendant Corporations are persons within the intent of the clause in section 1 of the Fourteen Amendment to the Constitution of the United States, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws.

Thus it was that a two-sentence assertion by a single judge elevated corporations to the status of persons under the law, prepared the way for the rise of global corporate rule, and thereby changed the course of history.

Since then, the Feds and many State governments have passed laws limiting the rights of these corporate "people" to express themselves. Clearly unconstitutional.

Wait, there's more. Wikipedia gives me a bit of special insight into this momentous decision. Here it is: "The doctrine of corporate personhood creates an interesting legal contradiction. The corporation is owned by its shareholders and is therefore their property. If it is also a legal person, then it is a person owned by others and thus exists in a condition of slavery -- a status explicitly forbidden by the Thirteenth Amendment to the Constitution. So is a corporation a person illegally held in servitude by its shareholders? Or is it a person who enjoys the rights of personhood that take precedence over the presumed ownership rights of its shareholders? So far as I have been able to determine, this contradiction has not been directly addressed by the courts."

I was having trouble believing what I was learning, so I turned to my friend Peter Shane, a law professor at Ohio State and one of the country's most respected Constitutional scholars. Here's what he told me:

"The most amazing thing about corporate status under the Constitution is that this fundamental question was resolved by the Supreme Court without any real discussion whatever. Scalia is supposed to be an originalist? I doubt anyone in 1789 understood the First Amendment as a limitation on Congress's capacity to regulate corporations. As for corporations being 'persons' under the Fourteenth Amendment, was the purpose of the Civil War to free corporations from state control? This is historical nonsense."

He also reminded me of the Roberts confirmation hearing I watched. "Remember," he said, "how Chief Justice Roberts said he would just be an umpire on the Court, calling balls and strikes? The Citizens United decision just exposes once again how radically activist the Roberts Court is, inventing law as it goes along. Roberts makes Rehnquist look like Brennan. The American people should immediately demand that Congress propose a constitutional amendment to make the right to vote in all elections a federal right and to authorize Congress and the states to regulate corporate participation in electoral politics."

Well, good luck with that Amendment, Peter. That's a long and tortuous process.

Meanwhile, we'll all have to take a big breath and sit back and wait to see if an even greater torrent of corporate money starts pouring into the political process - though it's not easy to visualize anyone actually having any more money.

Like a zillion other people, I invest in a bunch of mutual funds and a few equities. And like the rest of us, I do that to earn money. That's as far as I want the companies I invest in to go in representing me. Making money.
That's it.

I don't want to hear them saying they represent me politically or in any other way. They don't speak for me. Who they actually speak for is arguable. You might say they speak for their shareholders, that it's the shareholders who own the company. If that's true, then us shareholders should get to have a vote before the first penny of political booty is dispensed.

Corporations aren't doing that now. With the Supremes behind them, why would they start giving me a voice? Besides, that would make me a slave-owner, and I can't afford the housekeeping help I have now.

Some pundits have been saying that the Citizens United decision was downright radical. Well, I guess you could say that. After all, it did reverse about a hundred years of jurisprudence.

But what keeps me confused is that if the guys in the black robes wanted to be truly radical they could overturn the 1886 Santa Clara County decision.

Then we wouldn't have to be running about worrying about what more mischief the corporations will do with their newly reaffirmed personhood.