Think it Through

Piece by piece, whether it is securities, antitrust, taxes, or the federal government’s willingness to help people overcome financial difficulties, President Obama is dismantling the structure of the Reagan revolution. Obama is doing this with the same intensity, scope, and support among the public that President Reagan had when he tore down much of the foundations of Roosevelt’s New Deal and Johnson’s Great Society programs.

After a weaker version of Obama’s legislation to bring back some consumer protections for credit card holders passed the House of Representatives last week, the Senate has started to consider a tougher version. Although it is far from a sure thing that they will pass anything meaningful, the fact that Congress is addressing this issue at all is revolutionary. For the past three decades Democrats and Republicans have worked at the favor of the banks and credit card companies to strip away consumer protections against predatory lenders. This played to the melody of deregulation – a tune that government began to play first under President Carter but which became so popular it was practically a national anthem under Reagan.

At the same time that Congress loosened regulations on banks and other lenders, the companies began to increase substantially their marketing efforts: Visa began telling us “It’s everwhere you want to be,” Mastercard said spending money was “priceless,” and so on. Since then, we have seen millions of Americans weighed down with debt from which they can never fully recover. No one challenged the laws because we were told that if you fall behind on your payments it was entirely your fault. You were irresponsible. It took years for people to catch on that in many cases it was the lender who was irresponsible.

In 2006, the non-profit organization Americans For Fairness in Lending, asked our firm, Belden Russonello & Stewart, to help it figure out how to educate the public about the problems with the lending laws. They wanted to tell the story of the harm caused by hidden late fees, fine print that hides outrageously high interest rates, and other chicanery that falls under the heading of predatory lending.

We conducted a number of focus groups in Chicago, and I can remember coming away surprised, saddened, and inspired by what people told us.

I was surprised because of the familiarity with predatory lending practices from the average middle class people in the focus groups. I had figured that nobody would know what I was talking about when I introduced the topic, but instead people spoke up, citing instances of people who had been hurt by zero money down for car loans that turned out to include unpayable interest, payday storefronts, credit card misrepresentations that sunk people they knew, especially college students, and mortgages where expanding rates and penalty payments were concealed. We only had to mention the topic and we heard of flood of complaints.

I was saddened because most of these people who were aware of the practices believed that there was nothing they could do about them. Their response, as we used to say in Newark, New Jersey, “whaddaya gonna do?”

Finally, I was inspired by how a little information about the history of these practices could transform their resignation into indignation and the desire to speak up and get involved to change things. When they heard that before the 1980’s we had protections against most of the consumer traps they cited, they were stunned. Why can’t we go back to more sensible rules, they asked? Three years later, their collective response has caught the ear of the Congress and the president.

How strongly the Congress remakes the credit laws will be a test of how well lawmakers have listened to these people.  In a larger sense it will also test how far President Obama can take us down the path of undoing the Reagan revolution and bringing balance back to our laws.

With Arlen Specter a Democrat again (he started out as one in the ’60s) and Al Franken on the verge of breaking former Senator Coleman’s four corner stall in Minnesota, the Washington conventional wisdom says the Democrats will finally have the filibuster-proof majority of 60 votes that they have been missing.  Right? Not so fast.

There is no reason to believe the addition of the comedian and the chameleon to the Democratic caucus meetings will give the Senate Democrats a filibuster-proof voting block. All it does is move the swing votes in the Senate from Susan Collins and Olympia Snowe to the likes of Ben Nelson, Evan Bayh, Mary Landrieu, and Tom Carper.

It further marginalizes the Republicans – no more need to hang on every word and nuanced sentence of Collins and Snowe – but it does not assure the President a cooperative Senate. Without Specter or Franken the Democrats already had 58 members in the Senate. The lack of a working majority is not about numbers but leadership.  One orthopedic surgeon would do more than two new Democrats. The leadership needs a stronger backbone. Democrats have been unwilling to let the Republicans filibuster, and have two parties debate whether the American people want to follow the new set of policies presented by the Obama Administration or not.

Just last week we had an example that gave credence to my belief that two more Democrats will not be much help to the President. The Senate voted on April 29th to kill the president’s bankruptcy reform measure, which would have given bankruptcy judges in mortgage foreclosure cases to authority to weigh the facts and allow people to stay in their homes if the circumstances warranted. It was a simple case of consumers (and the White House ) versus the banks, which wanted no flexibility in foreclosures. Twelve  Democrats, including Senators Max Baucus of Montana, Mary Landrieu of Louisiana, Blanche Lincoln and Mark Pryor of Arkansas, Ben Nelson of Nebraska, Tom Carper of Delaware, and newly Democratic Arlen Specter went along with all the Republicans to vote with the banks to kill the bill.

Some people are screaming about the possibility of the federal government owning the banks, while they should be concerned that the banks own the United States Senate.

If we cannot rely on two more Democrats in the Senate to make real change happen, we go back to leadership, which raises some questions:

• First, will Majority Leader Harry Reid do what Tom Daschle should have done – that is step down from his leadership position to return to Nevada to campaign more often to protect his Senate seat that is up in 2010?

• Second, if Reid does step down , will his lieutenant Dick Durbin of Illinois break free from his role of the last six years – that of the loyal deputy who traced the missteps of his leader, such as watching helplessly as Senate Democrats enabled President Bush to break the Constitution by legalizing warrantless wiretapping, passing the Military Commissions Act,and enacting the Patriot Act, as well as making a mess of the Roland Burris appointment ?

• Finally, could Senator Durbin as a majority leader revert back to being the intelligent fighter for progressive causes that he was before he became a member of the Reid leadership team whose game plan has been to avoid controversy at all cost?

The answers to these questions are worth more than two more Democrats in the Senate.