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Yr Dok Zoom is pretty sure the first time he ever heard of Harvard professor Elizabeth Warren was her 2007 interview on Fresh Air, after she testified before the Senate Banking Committee about all the tricks credit card companies use to extract extra revenue out of customers -- like changing payment due dates with very little notice, to rack up late fees. We remember her mentioning she'd had her contract law students try to make sense of the long, fine-print terms and conditions of credit card contracts, and if Harvard Law students struggled to make sense of 'em, how was the average customer supposed to? She got famous later, after Jon Stewart had her on the "Daily Show." But I'll never forget how clearly she explained the ways very smart financial execs with very smart lawyers managed to rig the smallest details to their advantage. Warren has made a career of pointing out how the very rich have been writing America's rules since the Reagan years.

I felt something like that come-to-Populist Jesus moment reading Warren's newly released plan to bring Wall Street to heel: It's about high finance and low motives, and succinctly explains, with a load of links to studies and background reading, why running the US government for the advantage of the financial sector is terrible for American people -- and for that matter, terrible for the US economy. Take 20 minutes to read it and you'll say, well shit, that's not right. That's not fair.

Fortunately, it can be fixed, by President Warren, or any Democrat who adopts Warren's plan. All we need to do is slay a few dragons.


What's Good For Wall Street Is Not Good For America

Warren isn't calling for the elimination of capital. But she also explains that running America for the sake of the financial sector is ultimately not healthy for anyone but the people extracting money from the economy:

The purpose of the financial sector is to connect savers with borrowers as efficiently as possible and to spread risk. A growing financial sector can help the rest of the economy if it helps connect more people more efficiently and spreads risk more effectively. But, as several studies have shown, past a certain point, the growth of the financial sector undermines the rest of the economy by extracting money from it without producing any real value.

Capital that flows into finance is capital that could otherwise go to manufacturing, which ultimately is better for more people. It steers resources toward heavily collateralized sectors that actually are less productive for the economy, but create bigger returns for investors. Worse, it results in a brain drain away from more useful fields:

It lures talented people away from other more productive ventures, like starting businesses. For example, the year before the 2008 financial crisis, nearly half of Harvard's graduating class took jobs in finance.

Sure, some of that is good old free market forces, but for the most part, laws and tax policy have been guided by lobbyists for the financial sector. You invite the foxes to design the henhouses, and this is what happens.

America Has A Vampire Problem

One big part of Warren's plan involves rewriting the rules governing private equity funds, which have been a vehicle for corporate takeovers that make investors a bundle, but all too often do that by hollowing out the companies and driving them into bankruptcy. Think Mitt Romney and Bain Capital. Or for that matter, Warren says, look at Shopko, so recently mourned right here at Wonkette.

Consider Shopko, a discount retailer founded in 1961. By the end of 2005, it had more than 350 stores. Then, the private equity firm Sun Capital took over, loading Shopko up with more than a billion dollars of debt. Sun Capital soon forced Shopko to sell one of its most valuable assets — its real estate — requiring the company to lease back its own stores. Sun Capital made Shopko pay it a $50 million dividend and quarterly consulting fees of $1 million. It made Shopko pay an additional 1% consulting fee on certain transactions — which meant the company had to pay Sun Capital an extra $500,000 fee for the honor of paying it that $50 million dividend.

When the company finally crumbled and filed for bankruptcy, hundreds of workers lost their jobs and didn't even receive the severance pay they had earned through their work. But Sun Capital walked away with a juicy profit.

The cannibalization of the newspaper industry is one more example. Yes, the internet is a problem, but newspapers are being gobbled up and spit out by capital firms, leaving cities with less press coverage and fewer media outlets to keep the bastards honest, all for the sake of enriching the vultures.

Warren wants to completely remake the rules governing private equity to stop such "legalized looting." She calls for making equity firms, not the companies they swallow, responsible for the debts they incur in takeovers. To make money, the firms would have to make sure their acquisitions turn a profit. Corporate raiders would be held responsible to protect pension obligations of firms they take over, and would be barred from paying themselves huge fees for their business-dismantling "services." And tax rules would be overhauled to prevent the public from subsidizing the schemes.

Warren makes no bones about her aim of shrinking this unproductive part of the financial sector. She wants to "push the remaining private equity firms to make investments that help companies rather than stripping them down for parts."

Stop Private Speculation With Public Risk

Warren has already introduced her "21st Century Glass-Steagall Act" a couple times in the Senate, and had to explain to Steve Mnuchin why, for it to work, you have to separate investment banking from banking banking. The whole point is that if banks want to play roulette with investors' funds, then the investors and the banks should bear the risk, not the public, through the FDIC. Federally insured deposits should not be gambled with, full stop. It's really that simple, says Warren:

If banks want access to taxpayer-subsidized insurance, they should be forced to limit their activities to boring banking. If they want to engage in higher-risk investment banking, they should be forced to bear the full, long-term risk of their investment decisions.

Beyond that, Warren would appoint banking regulators who would actually regulate banks, not serve as their personal concierges in the federal government, and she'd put back most of the post-2008 collapse rules the Trump administration has eliminated -- because wouldn't it be nice not to repeat that?

The Business Of Banks Should Be Banking. The Business Of The Post Office Should Also Be Banking!

Warren points out that the current financial industry just plain doesn't serve a huge part of America:

A quarter of American families don't have sufficient access to the banking system — including a disproportionate share of families of color. On average, these families spend about 10% of their income in interest and fees stemming from their lack of access to basic banking services. That's roughly the same percentage of income that families spend on food.

Instead of policies that help payday lenders (talk about vultures!), Warren would like to feed two birds with one scone (YES WE SAID IT) by letting the Post Office provide simple bank accounts, like post offices do in other civilized countries. Gives the Postal Service new business, and voila, there's suddenly a lot of little banks, in big city neighborhoods and even tiny communities.

The Postal Service Office of Inspector General has presented a few different approaches to use postal banking to provide more access to more people. And because the Postal Service already offers some financial services and has the legal authority to expand on those offerings, postal banking requires no new legislation — just new appointees who are committed to the cause.

She also has other small fixes in mind, like fixing the antiquated system that so often means paychecks take days to post to people's bank accounts, leading to dilemmas that nobody should have to deal with:

Thanks to an outdated system at the Federal Reserve, it can take days for a check to clear. If payday is the 30th of the month and rent is due the next day, too many working families face the choice of paying a late fee to their landlord, an overdraft fee to their bank, or a sky-high interest rate to a payday lender.

Again, these systems didn't just happen; whole specialized sectors of the financial system depend on extracting money from poor people -- check-cashing and payday loan chains, cheap cars for expensive credit, and of course the companies that rent barely affordable apartments and drive the eviction industry. (If you haven't listened to "On the Media's" series on eviction, consider that homework, you.)

It doesn't have to be this way. Shifting the economy away from serving the financial industry won't just be good for the poors, but for all those entrepreneurs who want to make stuff and sell things -- it's that whole "expand the economy from the middle" thing Barack Obama was so big on.

No wonder the fuckers are so worried.

[Team Warren on Medium / NPR / On the Media / Brookings Institution / Image: Photoshoop of images by Glenn Scarborough and Gage Skidmore, Creative Commons License 2.0]

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Doktor Zoom

Doktor Zoom's real name is Marty Kelley, and he lives in the wilds of Boise, Idaho. He is not a medical doctor, but does have a real PhD in Rhetoric. You should definitely donate some money to this little mommyblog where he has finally found acceptance and cat pictures. He is on maternity leave until 2033. Here is his Twitter, also. His quest to avoid prolixity is not going so great.

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