Congress Passes, Communities Pay

The Gramm-Leach-Bliley paves the way for a wave of mergers creating Citigroup-like conglomerates that span banking, insurance and securities, and control hundreds of billions of dollars in assets. The bill is the culmination of two decades of effort by industry groups, and to judge from the standing ovation their lobbyists gave the conference committee when the final gavel banged down, they are pretty pleased.

But the bill contains little to serve the interests of ordinary Americans, especially people with modest incomes and people of color. They were not given the tools they will need to protect their own financial information, let alone to address the critical financial services needs of the communities in which they live. This bill was an opportunity – perhaps the only opportunity – to modernize the concept of community reinvestment to apply to all parts of the new “financial holding companies” that will rule the American economy in the 21st century.

Instead of taking advantage of that opportunity, Congress took a pass.

It seemed all the pieces were in place to achieve a very different outcome. We had a president who had included CRA as a plank in his first campaign platform and threatened many times to veto the bill over CRA. What other president even knew what the initials CRA stood for? We had a House of Representatives in which the Republican margin was so slim that the bill could not pass without Democratic support. We had a moderate Republican with no interest in gutting CRA chairing the conference committee. Indeed, Rep. Leach (R-IA) was responsible for inserting one of the more progressive CRA provisions in the House bill.

How could these fortuitous circumstances lead to such a dismal outcome? One obvious reason is Senator Phil Gramm (R-TX), whose animosity for CRA is legend. The chairman of the Senate Banking Committee was masterful at positioning himself to maximum advantage and then waiting until the other side blinked.

This is not to say that Senator Gramm didn’t have to work hard to achieve his final wins. He did. The conference nearly fell apart several times over CRA, and Treasury Secretary Summers and senior White House advisor Gene Sperling were personally tied up for several days in direct negotiations with Gramm over the bill’s CRA provisions. That’s testament to the concerted efforts of CRA supporters.

Another factor that may not be obvious outside of Washington was painfully clear to folks standing in the halls of Congress: the lure of campaign contributions and the intense desire of both political parties to come out on top in the next election. This presents a challenge and an opportunity to community groups and other CRA supporters.

The challenge is to build the case for why CRA should not be left in the 20th century while the financial services industry is ushered into the 21st. We must monitor the changes in financial services in the wake of Gramm-Leach-Bliley and document those that harm low- and moderate-income people. We must better find the vision and the vocabulary to articulate the roles that the non-banking components of these new financial conglomerates can play in serving the needs of low-income communities. And we must build alliances, mindful that any legislative agenda that embodies this vision will likely be opposed by the new extremely powerful conglomerates.

The opportunity is to challenge candidates in the next and future campaign seasons about their economic values and elect officials who are committed to creating a financial services system that works to the benefit of ordinary Americans.

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