-Caveat Lector-
October 22, 1999
A Transparent Ploy
To Hide a Liberal Racket
By PAUL A. GIGOT
Treasury Secretary Larry Summers likes to portray
himself as a can-do sort who's friendly to business. So
why on his first major policy call is he deferring to that
noted financial guru, the Rev. Jesse Jackson?
That's the real story behind Mr. Summers's decision this
week to walk away from the best chance in decades to
reform America's archaic banking laws. A bill to rewrite
the 1930s-era Glass-Steagall Act is closer than ever to
passing Congress. But Mr. Summers appears to be
putting his party's plans to play racial politics in 2000
above his obligation to the U.S. financial system.
The main sticking point isn't even about finance. It's
about Texas Sen. Phil Gramm's attempt to open a
window on one of America's great political extortion
rackets, the Community Reinvestment Act.
The CRA was sold in 1977 as a way
to induce banks to lend more to inner
cities. But its political uses weren't
fully exploited until the Clinton
presidency coincided with a wave of
bank mergers in the 1990s. Liberal
interest groups hit paydirt: They found
they could use CRA to obstruct bank
mergers, forcing costly regulatory
delays.
Banks concluded that if they wanted their mergers to be
approved in any financially reasonable period of time,
they had no choice but to pay up. So they wrote big
checks to various "citizen action" groups, and in return
the groups withdrew their objections to the mergers.
As a wealth redistribution scheme, CRA has proved
even better than lawsuits. Sen. Gramm says it's
leveraged some $9.5 billion in current and future cash
payments, including large chunks to liberal political
activists. In one 1994 deal uncovered by Congress, Fleet
Financial Group agreed to pay the Neighborhood
Assistance Corp. of America 2.75% of $140 million
worth of loans. The bank also paid $200,000 for
"start-up" costs--a kind of political finder's fee.
Mr. Gramm's outrageous reform idea is to expose these
secret political deals to public and media scrutiny.
Liberals once prized political openness--Louis
Brandeis, sunlight as the "best disinfectant" and all
that.
But this is the Clinton Age, when
political advantage always trumps
accountability. Thus Mr. Summers
spent much of the seven hours he
negotiated with Mr. Gramm on
Wednesday resisting the senator's
sunlight provision.
"I bet 90% of it was spent on the
CRA, and most of that on sunshine,"
the senator says. "Their strongest
objections are to reporting what the
groups do with the money."
The hypocrisy here is off the charts: Banks must jump
through hoops to show they're obeying CRA rules, but
the beneficiaries of those rules needn't report what
they're doing with their cash windfall. In other words,
the liberals who profit from claiming to speak for the
poor don't have to reveal if their winnings are actually
being spent on the poor. Russian money-laundering isn't
this easy.
Treasury sources insist they aren't against disclosure and
want to find a solution. But if that's true seven hours
sounds like a long time to fight about it. Mr. Gramm says
Mr. Summers proposed to let CRA beneficiaries report
to banks instead of to federal bank regulators. But banks
have no power to require truthful disclosure or to punish
falsehoods. So this "compromise" looks like a classic
Clintonian loophole--sounds great, less fulfilling.
At first glance it's hard to figure what the White House
and Mr. Summers are up to politically. Banking reform
would be a noteworthy achievement. And Hillary
Rodham Clinton is running for Senate from New York,
where many of the economic benefits would accrue.
But this week Senate Democratic leader Tom Daschle
may have given away his party's political game. He
included CRA reform as an example of what he
suggested was a pattern of Republican racism. "I have
never seen a party become this defiant when it comes to
protecting minority rights in my time in public life," he
said.
Wonderful: Make even banking reform a matter of race.
Accuse a Southern Republican of bigotry in order to
drive up African-American and Hispanic turnout in
2000. So much the better if Mr. Gramm, who is married
to a Korean-American, comes from Texas and is an ally
of George W. Bush: Race-baiting just might damage the
Texas governor's well-known appeal to minorities.
This might also explain why Rev. Jackson showed up
here last week to accuse Mr. Gramm of favoring "the
evisceration" of CRA. "There are dreamers and there are
dreambusters," said Mr. Jackson. "The biggest
dreambuster of them all is Sen. Phil Gramm."
Some in Congress think the White House has ordered
Mr. Summers to go along with this political play. On the
other hand, Mr. Summers might want to keep his job
beyond 2000, so it wouldn't hurt to do a political favor
for Al Gore. Whatever the truth, the failure of financial
reform when it's so near at hand would damage the
Treasury secretary's credibility in financial circles, and
rightly so.
The good news is that Mr. Gramm, a former Democrat,
isn't easily intimidated. "They're getting ready to violate
a basic principle of politics, and that is, 'Don't take a
hostage you're not willing to shoot,' " the Texan says.
"They want the banking bill more than I do."
He figures he can write a better banking reform in 16
months with President Bush.
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The Best Way To Destroy Enemies Is To Change Them To Friends
Shalom, A Salaam Aleikum, and to all, A Good Day.
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