and the American people have to be prepared for a major fight to take on these huge financial institutions.
Former Fed Chairman Paul Volcker, who has advised the Obama administration, supports breaking up big banks so they no longer pose systemic risk to the entire economy.
According to a recent article in the New York Times, Volcker said:
People say I'm old-fashioned and banks can no longer be separated from nonbank activity. That argument brought us to where we are today.
Paul Volcker. I couldn't agree more. That is what I am talking about. We have to start breaking up four financial institutions which led us into the economic disaster we are in right now that remain much too big to fail, that we are going to have to bail out again and again and again, and that today have a stranglehold on our economy.
The New York Times says under Volcker's plan:
JPMorganChase would have to give up their trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. Goldman Sachs could no longer be a bank holding company.
That is exactly what needs to be happening.
I come from a small State. We have community banks. Here is the irony: The banks in Vermont, in the midst of all of this financial disaster, did just fine. They are small, locally owned banks. They know the people they lend money to. The CEOs are not making hundreds of millions of dollars in profit. They know their community. They know what loans made sense. Now, I may be old-fashioned like Mr. Volcker, but I think that is what banking is about: to lend out money to people in the productive economy, to the business community, who can use the money to expand and create jobs; to homeowners who need that money to buy a home, not to be living in your own world engaged in a huge gambling casino producing and selling worthless products nobody understands.
The function of a bank is to be a middleman between people who need money and are producing real products and helping them get that money and people who are investing in the banks. It is not supposed to be an island to itself. But in recent years what we have seen, incredibly, is that 40 percent of all profit in America went to the financial institutions with a small number of people working there, relatively small. They got 40 percent of the profits because they live in a world that is a huge gambling casino.
We need financial institutions to go back to the way banking used to be, where the job of banks was to provide affordable loans to the productive economy so we can produce real products, real goods, and we can create real jobs when we do that.
Robert Reich, President Clinton's former Labor Secretary, said:
No important public interest is served by allowing giant banks to grow too big to fail. Wall Street banks should be split up, and soon.
We have a lot of people, some conservatives, some progressives, who are saying the same thing. If we are going to rebuild the middle class, the way to do that is, among other things, to change our disastrous trade policies, to make it clear to corporate America that they cannot continue to sell out the workers of this country by moving to China and other low-wage countries. We also have to have a much more competitive economy, one in which all large financial institutions do not own assets of more than half of the GDP of this country.
On that point, I find it very interesting that it is not just progressives such as myself or Robert Reich, but we have some conservative bankers—people who are heading Fed banks around this country—who are saying pretty much the same thing.
Also, when we talk about banks, I wish to get back to a point I raised earlier. This is an issue I have been working on for years and years, and this is the issue of usury. I mentioned earlier, if you read the religious tenents of the major religions throughout history, whether it is Christianity, Judaism, Islam, and others, what you find is almost universal objection and disgust and a feeling of immorality in terms of usury. When we talked about usury in the United States, what we usually talked about were thugs, gangsters working on street corners who lent out money at outrageously high interest rates to workers, and when that money was not repaid back at the interest rates asked for, the thugs would beat up the workers.
In fact, I am thinking now about the first movie of Rocky. I don't know if the Presiding Officer saw the first movie of Rocky with Sylvester Stallone, but before he became a successful fighter and the heavyweight champion of the world, that is what he was: a big tough guy who beat up people who did not pay back the gangsters the high interest rates they were asking for.
Well, the world has changed. Now the people who are committing usury are not the gangsters on street corners all over America. Their place has been taken by the CEOs of Wall Street financial institutions who are lending out money to desperate Americans at 25 or 30 percent interest rates. That, my friends, is called usury, and according to every religion on Earth, that is immoral. What you are doing is going up to people who are desperate, people who are hurting, and you are saying: You desperately need money, we are going to give you money, but there is a string attached. You are going to be charged an outrageous amount of interest on that money.
So here is the irony: The people who are hurting the most pay the highest interest rates. The people who need the money the least are paying the lowest interest rates.
So the Fed lent out billions and billions of dollars to the largest financial institutions and offered it at less than 1 percent. That is American taxpayer money—large corporations, less than 1 percent.
But if you are a worker today and you are having hard times—maybe you are unemployed—you are going to pay 25 or 30 percent interest rates on your credit card, and sometimes more. You have this Payday Lending where people are paying outrageous sums of money. I think that is immoral. I think we have to stop it, and it disturbs me very much that especially at a time when we bailed out these large financial institutions they are still able to charge our people 25 or 30 percent. People who have bailed them out get hit the second time around by having to pay 25 to 30 percent interest rates.
Right now, it is not even 25 or 30 percent. As a matter of fact, the tenth largest credit card issuer in this country, an entity called Premier Bank, is now offering a credit card with a 79.9percent interest rate and a $300 credit limit. What do we make of that? The tenth largest credit card issuer in this country is charging 79 percent interest rates, and we allow that to go on. These are crooks. These are no different than the gangsters who beat up people on street corners when they didn't get payment back, except now the gangsters are wearing three-piece suits and sitting in some fancy suite on Wall Street.
Today, over one-quarter of all credit card holders in this country are now paying interest rates above 20 percent and, as I indicated, as high as 79 percent. Let's be clear. When credit card companies charge over 20 percent interest on credit cards, they are not engaged in the business of making credit available. What they are involved in is extortion and loan sharking—nothing essentially different than gangsters, except they dress a lot better. That is all it is. It is thievery and we tolerate it, and we bail them out.
It is interesting in terms of these high interest rates because for many years we have had States, including the State of Vermont, saying: You are not going to charge outrageously high interest rates. For example, establishing a usury law is not a radical concept, which is what we have to move toward. We have to put a cap on interest rates. In fact, between 1978 and today, over 20 States in America had laws capping credit card interest rates.
In Alabama, the legal maximum amount of interest is 8 percent; in Alaska, it is 10.5 percent; in Arizona, it is 10 percent; in Idaho, 12 percent; Kansas, 15 percent; the State of Vermont, my own State, the legal maximum interest rate is 12 percent. But what happened is all of those State interest rate caps disappeared under the 1978 U.S. Supreme Court decision known as the Marquette case, which allowed banks to charge whatever interest rates they
