Weekly Audit: Don't let Citizens United wreck our economy

In a landmark decision last week, the Supreme Court ruled that corporations could spend unlimited funds to influence American elections, overturning a century of legal precedent. The Court’s ruling in Citizens United v. FEC undermines the integrity of the U.S. government, as President Barack Obama emphasized at his State of the Union address. But the decision also deals a damaging blow to the U.S. economy by encouraging lawmakers to write economic rules that benefit specific companies at the expense of everyone else.

The editors of The Nation lay out the High Court’s hubris in no uncertain terms [1]:

The Citizens United campaign finance decision by Chief Justice John Roberts and a Supreme Court majority of conservative judicial activists is a dramatic assault on American democracy, overturning more than a century of precedent in order to give corporations the ultimate authority over elections and governing. This decision tips the balance against active citizenship and the rule of law by making it possible for the nation’s most powerful economic interests to manipulate not just individual politicians and electoral contests but political discourse itself.

Citizens United and the financial crisis

How does this ruling have any bearing on the economy? Markets are not simply the product of random interactions between consumers and producers. Even under the most radical, laissez-faire economic theories, markets are defined, coordinated and policed by the government. For the economy to function at all, we need the government to define what constitutes fair play.

But over the past few decades, we’ve watched Congress and the executive branch rewrite those rules of the game under heavy corporate influence, creating artificial profits for a set of favored companies with very bad consequences for the broader economy.

The U.S. banking industry serves as a prime example. Since the 1980s, banks have been spending like crazy in all kinds of elections, and getting just about anything they want in return. I interviewed Harvard University Law Professor and TARP Oversight Panel Chair Elizabeth Warren for AlterNet [2], and she presented a concise but unsettling economic history of consumer protection law:

Thirty years ago we had laws that put some basic fairness into the consumer credit market. Over time, the large financial institutions captured the regulators who were supposed to be the cops on the beat to enforce those laws. They also pumped hundreds of millions of dollars into Washington to make sure that no new cops were put on the beat. Without good laws, the industry started selling ever-more-deceptive products, and their friendly regulators looked the other way.

The bank lobby and the AIG bailout

In Mother Jones, Corbin Hiar [3] reveals how even a bank that engineered a massive tax fraud scheme was able to benefit from the AIG bailout. Major financial institutions convinced Congress to block any regulation of credit default swaps (CDS) all the way back in 2000. CDS contracts were essentially insurance on the value of financial assets—if the assets lost value, banks would still get paid as if they were highly profitable.

CDS insurance encouraged banks to engage in risky mortgage lending, and allowed them to book huge profits on those risky mortgages during the housing boom, even though many of those mortgages were doomed from the get-go. AIG binged so heavily on CDS that the company was on the brink of bankruptcy in the fall of 2008. But an AIG bankruptcy would have hammered the major banks who served as AIG’s betting partners, most notably Goldman Sachs. Those banks would have received just pennies on the dollar from a bankrupt AIG. But under the bailout, the New York Federal Reserve paid the banks off at full value, without demanding any concessions whatsoever.

“The credit crunch was an existential threat to every over-leveraged big bank. What’s most shocking about the AIG bailout … is that these endangered banks were able to extract such a sweet deal from the government,” Hiar writes. “The banks were paid the full value of all the CDS contracts they had made with AIG—including those mortgage-backed securities they had bought when it was clear the subprime market was collapsing.”

The only AIG counterparty to even consider taking CDS losses was Swiss banking giant UBS, which was negotiating a separate settlement with the U.S. government over a massive tax evasion scheme. But even the tax fraudsters at UBS ultimately received full payment on their CDS exposure, and it now appears that the Swiss bank will be able to protect its wealthy tax-evading clients.

With the AIG bailout, the corporate takeover came full-circle. The banks purchased radical deregulation in Congress, and when the deregulated banks destroyed themselves, the government paid out billions to save them. The rest of the economy was ravaged by predatory lending, and taxpayers, not bankers, footed the bill for bank losses.

Redefining corruption

So the Citizens United decision will not introduce corporate influence in elections. Instead, it takes an uneven playing field and tilts it further in the favor of corporate executives. The Roberts court didn’t just open the floodgates for corporate cash in U.S. elections and call it a day. It also explicitly redefined “corruption” to give corporations—and anyone else—greater leeway to financially curry favor with politicians. Heather K. Gerken [4] details the new definition for The American Prospect:

The most important line in the decision … was this one: “ingratiation and access … are not corruption.” For many years, the Court had gradually expanded the corruption rationale to extend beyond quid pro quo corruption (donor dollars for legislative votes). It had licensed Congress to regulate even when the threat was simply that large donors had better access to politicians or that politicians had become “too compliant with the[ir] wishes.” Indeed, at times the Court went so far as to say that even the mere appearance of “undue influence” or the public’s “cynical assumption that large donors call the tune” was enough to justify regulation. “Ingratiation and access,” in other words, were corruption as far as the Court was concerned.

Most of us would consider the key lawmakers ensnared in the Jack Abramoff scandal as fundamentally corrupt—Abramoff flew former Republican Whip Tom DeLay of Texas to Scotland for golfing vacations in an effort to win greater leverage over DeLay’s legislative agenda. The court’s ruling claims that this kind of activity is not corrupt, and bars Congress from passing any laws to counteract it. As filmmaker Alex Gibney emphasizes in an interview with Amy Goodman of Democracy Now! [5], the court has essentially taken Tom DeLay’s corporatist philosophy and made it a piece of constitutional law.

“Tom DeLay’s view is, we spend more money on potato chips than we do on political campaigns. His view would be, let the money rush down like great waters,,” Gibney says. “I think the court was channeling Tom DeLay when they issued their recent decision.”

Why citizens need to speak out now

So what can we do about this? As GRITtv’s Laura Flanders [6] discusses in a roundtable discussion with several progressive leaders, there will be a long fight for a Constitutional Amendment to ban corporate influence in politics. Until then, as progressive strategist Mike Lux explains, citizens will have to take an aggressive stance against Corporate America as shareholders. Corporate power is exercised by a handful of executives, but the resources that support that power come from ordinary Americans who own stock in those companies, primarily through retirement plans. By demanding that the giant firms we own do not highjack our democracy with lobbying, we can limit some of the damage from the court’s recent decision.

If you liked the bank bailouts, then there’s plenty for you to love about the Citizens United decision. If you didn’t, then it’s time to speak up.

This post features links to the best independent, progressive reporting about the economy by members [7] of The Media Consortium [8]. It is free to reprint. Visit the Audit [9] for a complete list of articles on economic issues, or follow us on Twitter [10]. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch [11], The Pulse [12] and The Diaspora [13]. This is a project of The Media Consortium, a network of leading independent media outlets.

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