‘Democratic wing’ of Democratic Party takes on Wall Street

By Robert L. Borosage
August 1, 2013

The chattering classes are fascinated by the Republicans’ internecine battle to redefine the party in the wake of the George W. Bush calamity and the Mitt Romney defeat — from Senator Rand Paul’s revolt against the neoconservative foreign policy, to intellectuals flirting with “libertarian populism.” Less attention has been paid, however, to the stirrings of what Senator Paul Wellstone dubbed “the Democratic wing of the Democratic Party” — now beginning to challenge the Wall Street wing of the party.

Perhaps the strongest demonstration of this was the barrage of “friendly fire” that greeted the White House’s trial balloon on nominating Lawrence Summers to head the Federal Reserve Bank. More than one-third of Democrats in the Senate signed a letter supporting Janet Yellen, now vice chairwoman of the Fed. More than half of the elected Democratic women in the House of Representatives signed a similar letter. Many were appalled at the notion of passing over the superbly qualified Yellen for Summers, with his notorious record of denigrating and dismissing women.

But, as Katrina vanden Heuvel, editor of the Nation wrote in the Washington Post, Summers also drew opposition because he was the “poster boy for the Wall Street wing of the party — literally.” (Summers joined then-Treasury Secretary Robert Rubin and then-Federal Reserve Chairman Alan Greenspan on the now risible 1999 Time magazine cover celebrating the “Committee to Save the World” — before the global financial collapse exposed the folly of their policies).

Under President Bill Clinton, Summers was Rubin’s powerful protégé and championed the deregulation of Wall Street. Summers scorned the chairwoman of the Commodity Futures Trading Commission, Brooksley Born, when she sought to tame the market in derivatives. (Instruments that Warren Buffett later called “weapons of financial mass destruction.”) He defended the Clinton administration’s trade policies — the North America Free Trade Agreement, the World Trade Organization, opening to China — that led directly to unprecedented and unsustainable trade deficits, as multinationals rushed to ship good jobs abroad.

After a troubled stint as president of Harvard, Summers made millions consulting for hedge funds on Wall Street. He then went back through the revolving door — into the Obama administration, where he supported the bailout of the banks without restructuring them, suffered (though opposing internally) the premature turn to austerity and pressed on with the old trade policies.

The opposition to Summers reflects the growing revolt against these policies. In the House, the Congressional Progressive Caucus recently used its annual budget to indict the misguided focus on budget deficits and austerity, and lay out an alternative course of public investment and progressive taxation that would generate more jobs, spur balanced growth and still put our books in order over the next decade.

Senators Sherrod Brown (D-Ohio), Jeff Merkley (D-Ore.), Carl Levin (D-Mich.) and newly elected Elizabeth Warren (D-Mass.) have spearheaded the charge against Wall Street. Brown has called for breaking up banks that are too big to fail and, according to Attorney General Eric Holder, too big to jail. Warren and Levin have used hearings to expose and indict the regulatory lassitude that has resulted in continuing bank scandals, as the big banks continue to treat regulatory fines as a minor cost of doing business.

Brown, Senator Bernie Sanders (D-Vt.) and many others are leading the opposition to the administration’s corporate trade policies. This winter, the president’s push to gain “fast track” trade authority — to be able to force an up or down vote on future trade accords now under negotiation — will face fierce opposition from those calling for a new manufacturing and trade strategy to revive manufacturing here at home. Over two-thirds of the House Democratic freshmen legislators have already expressed their opposition.

Next year congressional Democrats will push to mitigate our Gilded Age inequality. The administration will join the drive to raise the minimum wage. Progressives will demand action on perverse CEO compensation schemes that give executives multimillion-dollar personal incentives to focus on next quarter returns rather than long-term strength.

A sign of progressive strength is President Barack Obama’s turn against austerity in the run-up to the ugly budget debate due to begin this fall. He has stumped for a long-term strategy to rebuild the middle class – founded in part on vital investments in education, infrastructure, new energy and research and development. But Democrats are openly worried that he will cede too much to the Republican right to gain agreement on keeping the government operating.

The president met with Democrats on the Hill Wednesday to reassure them that he would not accept cuts in Social Security, Medicare and Medicaid benefits in any negotiation. He vowed to push to repeal the sequester cuts and defend programs for the poor.

The backdrop to all this is an economy that is no longer working for working people. As the economy struggles to come out of the Great Recession, inequality is getting worse. The middle class continues to decline. The poor are growing more isolated, with less opportunity to escape. The jobs being created off less pay, benefits and security than those that were lost. Wall Street has been saved — while homeowners were left to struggle on their own.

The president has sensibly indicted the right’s trickle-down policies, arguing that we must build the middle out. But he’s assuming that we can do that while bolstering the big banks, sustaining the corporate trade policies and doing little to empower workers and curb executive excesses. His administration’s economic team has been staffed largely by an old-boys network, revolving in and out of Wall Street.

The opposition to Summers has exposed the growing backlash within the Democratic Party to this old way of doing business. Whether it can overcome the big money politics that gives Wall Street a hold on the party remains to be seen.

But the bankruptcy of the old policies — in theory and practice — is clear. As the stunning objections to the Summers nomination show, the demand for change is building.

PHOTO: Lawrence Summers (L), then-director of the National Economic Council, talks with Federal Reserve Board Chairman Ben Bernanke in the White House in Washington, June 17, 2009. REUTERS/Kevin Lamarque 

PHOTO (Insert A): Janet L. Yellen, in Los Angeles, March 23, 2010. REUTERS/Mario Anzuoni

PHOTO (Insert B): Senators Carl Levin, Elizabeth Warren and Sherrod Brown. REUTERS/Files/Combination


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Summers is bad news. More conservative posturing at the expense of the people favoring the moneyed class. The era of big money has to end, else it will end less than peacefully, and cretins like Summers are to insular to see this. No other element will shake politics (or the peace) like economics and the fair and rational system of sharing national resources.

Posted by jw_collins | Report as abusive

Excellent Piece!! The only way to truly fix the issues though is with term limits on congress and SCOTUS, and campaign finance reform. We need a referendum vote on it as the politicians will never allow such things.

Posted by tmc | Report as abusive

Thank you for this most excellent piece of writing!

Obama has been a stunning disappointment in supporting the poor and middle class while giving overwhelming support to Corporate America. The only good thing you can say about him is that he has been less destructive than a Republican president would have. In the last election he was the lesser of two evils choice.

Thank you to Senators Sherrod Brown, Jeff Merkley, Carl Levin, Elizabeth Warren and Bernie Sanders.

Posted by Des3Maisons | Report as abusive

Putting aside politics and ideology, Summers is poison for the FED chair. This job — arguably the most important in the world — demands the opposite of the self-aggrandizing, chest-bumping view of reality. Whether you approve of Ben Benanke’s policies or not, the man is all integrity. His only concern is the American economy, and not his personal image or power. This has saved us, to whatever extent we have been saved. Quiet and steady in the heat of battle, and never the blowhard.

That’s the word I was looking for! Blowhard! Summers in a word.

Posted by From_California | Report as abusive

Since congress is locked in the corner of austerity, choosing the head of monetary policy is the only tool the Administration has to affect any significant economic change. But low interest rates have failed to stimulate hiring which drives consumption and rewards investment. It might be time for a new approach that unlocks the liquid reserves the corporate world is just sitting on. Maybe a little inflation is just the trick? Regardless of the merits of that conjecture. My point is that Summers, smart as he may be, is a known entity that is unlikely to have any new tricks. Yellen is unknown and inspires intriguing possibilities.

Posted by LEEDAP | Report as abusive

The socialist wing of the democratic party, stop calling it progressive cause it’s really quite reactionary.

Posted by colsa2 | Report as abusive

May the demands for change ever increase in both number and volume. BTW, noble citizen and Senator Bernie Sanders is not a Democrat.

Posted by maja312 | Report as abusive

The “Democratic wing of the Democratic Party” may spout populism and middle class values, but Wall Street knows that it’s got them by the kahunas, just like everyone else in Congress. Like the oil industry, they can allow some members of Congress these populist asides because they know that, at the end of the day, they will vote for Wall Street (and for the oil industry) because, ultimately, that is who owns them.

Posted by Sanity-Monger | Report as abusive

Sanity-Monger, Don’t forget, the US Military Industrial Complex is the number one user of oil in the world. There is no way to curb “green house gas emissions” without curbing our Military. MIC = POLUTION and POVERTY.

Posted by 2Borknot2B | Report as abusive

I used to think Rubin was a pretty decent Fed chair, but no longer after he pushed the Gramm-Leach-Bliley and Commodity Futures Modernization Acts on Clinton. There was nothing at all wrong with Glass-Steagall other than it didn’t let the Wall Street big banks make as risky and potentially profitable gambles as they’d wanted, but that was its purpose, stability of the entire economy rather than profits for the few. FDR had it right the first time; reinstate Glass-Steagall.

Posted by borisjimbo | Report as abusive

Excellent article! These are just the first breezes of the coming storm. Wall Street threw everything it had to defeat Elizabeth Warren but she got through. The first crack in the armor! But it’s going to be a long bloody haul…

Posted by bluepanther | Report as abusive