companies joined together, it would be the biggest merger in history. The two finance giants reflected a bit, and then very deliberately, very publicly, and very illegally, they merged their companies, confident that a compliant Congress would change the law after the fact.
And, wow, did they get it right: a subservient Congress did just what it was told to do. In 1999, after the repeal of Glass-Steagall, the big-time financial world got even riskier and—for a while—even more profitable.
In the same way that some Republicans had signed on for greater regulations in earlier decades, some Democrats now got on the deregulation bandwagon big-time. As he signed the repeal of Glass-Steagall, President Bill Clinton cracked a few jokes, then praised the move for “making a fundamental and historic change in the way we operate our financial institutions.” He had fought for the repeal, and now he claimed victory: “It is true that the Glass-Steagall law is no longer appropriate to the economy in which we live.” As he presciently explained, it will help “expand the powers of banks.”
AROUND THE TIME Congress and the bank regulators were rolling over and playing dead for the big banks, I was in Massachusetts, teaching at Harvard and studying another sign of danger in the American economy: during the 1990s, American families had been loading up on debt. Credit card companies were making their products more and more complex. Credit card agreements that back in 1981 had been about a page and a half long had morphed into contracts that ran to thirty pages of tiny type by the early 2000s. Increasingly, the agreements were larded with obscure legal terms, hidden tricks, and bizarre accounting practices. Ultimately, some members of Congress became concerned. During one hearing, laughter broke out as credit card executives were called on to explain certain incomprehensible terms.
But there was nothing funny about the effects of this rising spiral of debt on working people. Banks and credit card companies encouraged families to get in way over their heads, and predatory contracts trapped people into years of staggering fees and astronomical interest rates. Credit cards were handed out like candy, and they soon began producing tens of billions of dollars in profits for their issuers. Newspapers and radios regularly reported lighthearted stories about a baby, a dog, or a cat that had been issued its own preapproved card.
The numbers I was coming up with in my research were so alarming that I started looking for more ways to get the word out—speeches, articles, op-eds, interviews, and pretty much anything else I could think of. One day in 2005, I got a phone call and was asked a surprising question: Would I please come to Washington to meet with the regulators at the Office of the Comptroller of the Currency?
Woo-hoo! This was the big-dog bank regulator, the cop that had authority to tell many of the biggest credit card issuers in the country to cut it out. Really. This was an agency that could eliminate tricks and traps from millions of credit cards. Oooh, this could be fun.
I flew to Washington on a cloudy February day. I’d never been to the OCC offices, which were sleek and modern. The acting comptroller, Julie Williams, welcomed me in the lobby and waved me through security. Upstairs, we visited for a few minutes in her office, which was outfitted with elegant modern furniture. No standard-government-issue, banged-up stuff here. Everything had a cool, well-designed look.
Acting comptroller Williams—“call me Julie”—was tall and thin, with a fashionably short haircut and an elegant cashmere jacket. She had ramrod-straight posture and an intense stare. She always kept her voice at a low volume, but every word was carefully weighed and measured for maximum impact. Here was a woman who would never disrupt markets with so much as a misplaced syllable.
Julie led me to an elevator and then to a large conference room, where she introduced me to a big group of OCC economists and bank supervisors. In these pre-PowerPoint days, I had assembled a presentation that relied on transparencies and an overhead projector. For over an hour, I carefully went through my data. First I demonstrated the increasingly precarious position of millions of American families; next I provided abundant evidence that the banks were boosting their profits by tricking many of the people who were borrowing money from them. Even when giving an academic presentation, I could get pretty wound up—and even in a room full of sober government officials, I didn’t hold back. Cheaters are cheaters.
The economists and supervisors had lots of questions. They were engaged and thoughtful, and I stayed until the last person had asked the last question. Finally I picked up my slides. I was exhausted, and I needed some water.
Julie and I headed back to her office to pick up my backpack. As we stepped into the elevator, she said that I had made a “compelling case” that credit card debt was creating serious problems.
For a moment I closed my eyes: yesssss! My fatigue evaporated. This was exactly what I wanted: the regulator in chief had recognized that there was a problem! I couldn’t wait to hear her confirm that she would put some of the OCC’s thousands of employees to work investigating these shady practices and reining in some of the predators. I had worked so hard on these data, and now they were going to have an impact. I was ready to break out my dancing shoes.
Then Julie gave a small, sad smile. She said it was just too bad.
I waited several seconds, and when she didn’t say anything more, I said, “Uh, yeah, it’s too bad. But you can stop it.”
“Stop it?” She jerked back as if the thought had never occurred to her. “Why would we do that?”
Well, because it’s wrong? And because millions of people are getting hurt? And because it’s dangerous for banks to build their profits by cheating people? And, finally, because this is the sort of financial adventure that usually ends very badly for both the banks and the economy?
Again I pointed out that the OCC—her agency—had both the power and the responsibility to shut down these dangerous practices.
“Oh, we can’t do that,” she said evenly.
As we headed to the lobby, I started to press her. I figured this might be my last chance. “Of course you can do it,” I said. “You have the authority, you are responsible, you can make a huge difference in people’s lives.” As I made my case, my voice started to rise.
She smiled. “No, we just can’t do that. The banks wouldn’t like it.”
The banks wouldn’t like it.
What? Are you kidding me? I almost didn’t believe what was happening. I knew this was the Bush administration, but gimme a break. Who cares if the banks don’t like it? You don’t work for them. You work for the American people—for the people who are getting cheated. I was so furious my hands were shaking.
Julie never raised her voice or broke her smile. Instead, she walked me through the lobby and said good-bye. So far as I know, neither she nor anyone at that entire agency ever followed up on anything I said that day.
And I know for sure they never invited me back.
But it wasn’t just the bank regulators who fell down on the job. Other government agencies also competed for their place in a book that could have been titled Profiles in Cowardice. In the 1980s, the SEC began the shift from sending out aggressive regulators to letting the big financial players police themselves. By the time I was making my presentation to the OCC in 2005, the SEC had effectively neutered itself. As investment banks gobbled up more and more risk, the SEC put in place voluntary regulations, and then the SEC chair said that the banks were free to comply with these regulations—or ignore them.
Voluntary regulations? Jeez, can you imagine Tony Soprano in a world of voluntary regulations? All these years later, I want to scream at the SEC, “What was wrong with you guys? You were supposed to be on the side of the people!” But