Bank rage, Part 1

“Bank Lending Keeps Dropping,” went the Monday headline in The Wall Street Journal. As Congress returns, bailout backlash will become road rage unless the president and Congress take action that is strong and credible.

As credit card CEOs visit the White House on Thursday, the president and Congress should push reforms that reverse recent interest rate increases and other abuses that were done to beat Congress and the Fed to the punch.

Otherwise, actions will be seen as faux reform. Banking rage will spread among unhappy constituents if politicians try to claim credit for preventing abuses that have already happened, giving those who committed them a victory.

Economically, what is at stake is the heart of our national economy, whether bank practices aggressively violate the reasons the banks were given trillions of dollars, while these practices damage the economy today and raise the danger of a double-dip recession by 2010.

Politically, what is at stake is a coherent narrative of our economic crisis and whether the president, or either party in Congress, can retain the trust and confidence of the nation. Trillions of dollars were provided to firms to increase lending to consumers and business. Yet after trillions of dollars were provided, bank lending has declined, credit card interest rates have risen, credit lines have been slashed, some borrowers are forced to pay rates of 25 percent or more, and banks have begun a new wave of foreclosures.

These are direct attacks against the very reason these monies were provided.

Trillions of dollars spent to provide more lending has led to less lending. These trillions of dollars have created conditions that many taxpayers, from the right to the left, consider the moral equivalent of a war against them by those who took their money.

The big losers are those who make the most sacrifice: taxpayers, workers and consumers who are forced to pay for these bailouts three times:

Taxpayers paid for these bailouts when trillions of their dollars were provided to banks and the purpose of increasing lending was dishonored by banks.

Taxpayers are paying a second time in higher interest rates, new fees, lower credit lines and skyrocketing foreclosures by banks.

Taxpayers will pay a third time through future tax increases, spending cuts and inflationary impact that will devalue their future salaries and further devalue their retirement funds and savings.

Meanwhile, the chairman of the Senate Banking Committee and many members of both parties spent the first quarter of 2009 raking in huge campaign monies from banks, Wall Street firms, mortgage companies and hedge funds. This tone-deaf fiasco will only heighten public cynicism as these numbers are reported and bank rage rises.

Even a recent president of Harvard, now the president’s chief economic adviser, moonlighted to make hedge fund money. What message does this send to students at the Harvard Business School, the Harvard Law School and Americans looking to Washington to protect them from financial abuses?

As the president convenes a meeting at the White House to discuss credit card practices, and Congress returns well-aware of growing rage from constituents, will voters see real reform, or faux reform that keeps in place recent abuses, fools nobody back home and escalates public anger?

Stay tuned for Part 2.

Budowsky was an aide to former Sen. Lloyd Bentsen and Bill Alexander, then chief deputy majority whip of the House. He holds an LL.M. degree in international financial law from the London School of Economics. He can be read on The Hill’s Pundits Blog and reached at