an unanticipated consequence of
Jack M. Balkin
Jack Balkin: jackbalkin at yahoo.com
Bruce Ackerman bruce.ackerman at yale.edu
Ian Ayres ian.ayres at yale.edu
Mary Dudziak mary.l.dudziak at emory.edu
Joey Fishkin joey.fishkin at gmail.com
Heather Gerken heather.gerken at yale.edu
Mark Graber mgraber at law.umaryland.edu
Stephen Griffin sgriffin at tulane.edu
Bernard Harcourt harcourt at uchicago.edu
Scott Horton shorto at law.columbia.edu
Andrew Koppelman akoppelman at law.northwestern.edu
Marty Lederman marty.lederman at comcast.net
Sanford Levinson slevinson at law.utexas.edu
David Luban david.luban at gmail.com
Gerard Magliocca gmaglioc at iupui.edu
Jason Mazzone mazzonej at illinois.edu
Linda McClain lmcclain at bu.edu
John Mikhail mikhail at law.georgetown.edu
Frank Pasquale pasquale.frank at gmail.com
Nate Persily npersily at gmail.com
Michael Stokes Paulsen michaelstokespaulsen at gmail.com
Deborah Pearlstein dpearlst at princeton.edu
Rick Pildes rick.pildes at nyu.edu
Alice Ristroph alice.ristroph at shu.edu
Brian Tamanaha btamanaha at wulaw.wustl.edu
Mark Tushnet mtushnet at law.harvard.edu
Adam Winkler winkler at ucla.edu
“Politics is the shadow cast on society by Big Business”
In the run-up to passage of financial reform, internal tensions among Democrats were frequently on display. (The GOP political landscape appears much simpler: whatever can be labelled as "anti-regulation" gets approval from both the leadership and the Tea Party freshmen.) Now the grand guignol over interchange fees has exposed growing faultlines among Senate Democrats. The future of the party lies either with Chuck "Wall Street" Schumer, or Dick "Austerity" Durbin. Their struggle illuminates a great deal about the modern legislative process.
Ryan Grim and Zach Carter lay out the contours of the battle:
Delivery surcharge. Paper charge. Equipment charge. There’s an additional fee for using cards from banks outside his contract, but [retailer Charlie] Chung says he has no way of knowing until he’s gotten his bill how much of that pricier plastic has been swiped. The fees Chung pays are a tiny fraction of Wall Street’s swipe fee windfall; banks take in a combined $48 billion a year from these “interchange” fees on debit and credit cards, according to analysts at The Nilson Report. That money comes out of the pockets of consumers as well as merchants, as stores pass on whatever costs they can to their customers.
Last year’s financial reform bill ordered the Federal Reserve to crack down on debit card swipe fees, a $16 billion pool of money from which $8 billion flows to just 10 banks. As a concession to Wall Street, credit card fees were left unscathed. But the clock never ticks down to zero in Washington: one year’s law is the next year’s repeal target.
Mike Konczal and Adam Levitin have exhaustively analyzed the interchange battles; suffice it to say, it's hard to read their work (and compare fees internationally) without getting the sense that banks are getting a massive windfall here. Usually that kind of extractive industry can use its profits to buy endless favors in DC. But the extremely high rates started irking retailers, who had enough leverage to push for legislation that required the Fed to reduce the swipe fees. Now Chuck Schumer (and his surrogate, Jon Tester) want to delay that reduction; Illinois Senator Dick Durbin, who sponsored it, is fighting back. According to Carter & Grim, "118 ex-government officials and aides are currently registered to lobby on behalf of banks in the fee fight," and retailers "have signed up at least 124 revolving-door lobbyists."
In phrasing a bit less poetic than the Dewey quote I titled this post with, a "frustrated moderate Democratic senator" described the battle as emblematic of the broader tone in Washington:
I’m surprised at how much of our time is spent trying to divide up the spoils between various economic interests. I had no idea. I thought we’d be focused on civil liberties, on education policy, energy policy and so on. The fights down here can be put in two or three categories: The big greedy bastards against the big greedy bastards; the big greedy bastards against the little greedy bastards; and some cases even the other little greedy bastards against the other little greedy bastards.
One could easily read the Carter & Grim's 8,000-word article and despair. We learn in it, for example, that according to the Boston Federal Reserve, "the perks associated with plastic lead to an average wealth transfer of $771 from families making less than $20,000 a year to households earning $150,000 or more." But while the economists in Boston's Fed illuminate the upward redistribution the banking system is so good at, Fed Chair Ben Bernanke is contributing to the effort to scuttle the swipe fee reductions by fretting that he can't shield small banks from its effects.
Even if we take Bernanke at his word (which one might not be inclined to do, given his "evolving" position and scant concern for other "little guys" in the economy), there are many ways the Fed could help small banks that would blunt or even outweigh the loss of swipe fee revenue. But that doesn't stop Barney Frank from taking Bernanke's side on the matter, betraying the very small businessmen he used as props for a photo op a few months before. Carter and Grim's article suggests that the Schumer's power plays here, along with House Dems' moves closer to Wall Street, are reinforcing a long-term secular trend in Democratic party elites' alignment toward a finance industry funding base.
Why care? Even Carter/Grim seem nihilistic by the end, quoting two defeatist perspectives:
Whatever happens the next few weeks or months, Charlie Chung of Cups & Co. isn’t confident that he’ll wind up paying less money to the banks. He guesses that the banks will find a way to increase unregulated fees: “It’s like, you’d scratch your head, ‘I thought they were going to charge me two cents per transaction?’" Mark Pryor, one of the senators from Walmart, is equally pessimistic that consumers will see any benefit. “Either way, the consumer probably ends up paying for it,” he says. “They’ll get you. You’re going to pay for it one way or another.”
Robert Reich observed the trend in his book Supercapitalism: the business of most members of Congress is not "jobs," or "deficit reduction," or whatever the MSM flavor of the week is. It's finding a way to wrap up a donor's agenda in those mantles.
But we can still distinguish between better and worse industries. Retail, for all its faults, is not a too-big-to-fail "house" providing stakes and leverage for an ever-more-dangerous and out of control Wall Street casino. If Walmart (or Cups & Co.) collapsed tomorrow, there's no bailout. Walmart isn't packing dubious debt into CDOs and marketing them to pension funds. Its general modus operandi is to ruthlessly force its suppliers to reduce costs. I don't like when it does that by forcing poor overseas laborers to toil 60 hours a week for $8 a day; I do approve if they can reduce some of those absurdly high fees from banks. (Just one data point, from the credit card world: "in the US, retailers pay roughly a 2% interchange fee for each credit card purchase. This is compared to a 0.5% interchange fee in Australia, and a 0.3% interchange fee in the EU.")
So consumers may well see little gains from interchange fee reform. But if Durbin manages to fend off the Schumer/Frank/Geithner/Rubin/Bean/Bachus/Corker wing of the Republicratic party, at least the money goes to a slightly less parasitic sector of the economy. That's probably the outer limits of political hope in our time.