Bloomberg: Sanders Taps Anger to Influence Bailouts

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Sanders Taps Anger to Influence Bailouts Bloomberg

By Scott Lanman

The future of American capitalism is being shaped in part by Congress's only avowed socialist.

First-term Vermont Senator Bernie Sanders, who spent 16 years in the U.S. House of Representatives, is taking advantage of rising populist anger at the government's bailouts of financial companies to push legislation that would reveal the identity of all Federal Reserve borrowers and restrict recipients of emergency Fed loans from hiring foreign workers.

"This is his moment," said Vincent Reinhart, a former Fed monetary-affairs chief who is now resident scholar at the American Enterprise Institute in Washington. "The American people want to extract retribution. They want to punish somebody. Who better a vehicle to design that punishment than somebody who's been thinking about it his entire career?"

As the Fed tries to stabilize the banking system and end the recession with unprecedented credit programs that may put taxpayer funds at risk, it is running into someone who's long been a "thorn in the side" of the central bank, said Tom Gallagher, head of policy research at International Strategy & Investment Group Inc. in Washington and a former congressional aide.

Sanders's foreign-worker measure initially scared investors away from a $1 trillion Fed-Treasury program to jumpstart lending. And Fed Chairman Ben S. Bernanke told Sanders in a February letter that naming borrowers would be "counterproductive" and result in "severe adverse consequences" for the economy.

Average Taxpayer

When asked in an interview if he's hampering the Obama administration's efforts, Sanders, 67, said he's just standing up for the average taxpayer.

"What Wall Street needs to do is to apologize to the American people for their recklessness and make amends and not continue to threaten our economy," he said.

For years a self-proclaimed "democratic socialist" and congressional outsider, Sanders, an independent, now has policy influence far beyond his regular verbal clashes with Alan Greenspan in hearings from the 1990s to 2005. He once accused the former Fed chairman of attending "cocktail parties" instead of seeing the "real world."

Part of Sanders's increased impact is because of his 2006 election to the Senate, which has 100 members, after being one of 435 representatives in the House. In addition, Sanders caucuses with Democrats, who control both the White House and Congress this year for the first time since 1994.

Blocked Nomination

The Fed isn't the only agency over which Sanders is flexing his Senate powers. Until yesterday, Sanders had a procedural hold on the nomination of Gary Gensler to run the Commodity Futures Trading Commission, partly because of Gensler's work at the Treasury Department on legislation in 2000 that exempted some derivatives from oversight by the CFTC.

Sanders dropped his opposition after the Obama administration May 13 announced a plan to expand regulation of the over-the-counter derivatives market.

Some of his concerns "have been well-vindicated," said Jim Leach, a former House Financial Services Committee chairman and Republican representative from Iowa. "One might say he was ahead of the curve."

Sanders grew up in a "lower-middle-class" family in Brooklyn, New York, according to his 1997 memoir, "Outsider in the House." His father sold paint, and the "lack of money was a constant source of tension and unhappiness," he wrote. As a University of Chicago student, he joined groups such as the Young People's Socialist League and marched against nuclear proliferation.

Senate Runs

He first ran for the U.S. Senate in a special election in 1972 with the peace-oriented Liberty Union Party, getting 2 percent of the vote. He ran again in 1974, receiving 4 percent while losing to fellow Senator Patrick Leahy.

After an unsuccessful campaign for governor in 1976, Sanders quit the Liberty Union Party to make a living writing and producing educational filmstrips on New England history. In 1979, he produced a 30-minute video on Socialist leader Eugene Debs after discovering that most college students hadn't heard of him, according to his book.

Debs "remains a hero," Sanders wrote.

He returned to politics in 1981, winning election as mayor of Burlington by 10 votes, a post he held until 1989. In 1990, he won a seat in the U.S. House, the first independent elected to Congress in 40 years. On Capitol Hill, Sanders became known for his views, his work ethic and rumpled style.

Bailout Fatigue

Now some of his proposals are gaining support, as fellow lawmakers hear from constituents fed up with government bailouts.

His budget amendment urging the Fed to identify borrowers passed 59-39, with 21 Republicans voting in favor. Iowa Republican Charles Grassley cosponsored his visa provision, which restricts companies receiving financial-rescue or Fed emergency funds from replacing laid-off employees with foreigners.

The provision added a burden to what was already shaping up in March to be a slow start to the Fed's Term Asset-Backed Securities Loan Facility, a cornerstone of President Barack Obama's plans to revive credit for consumers and businesses. Some investors balked at requesting loans through the facility because they were turned off by the restriction and prospect of further government interference.

New York Fed

Activity related to the TALF picked up this month as some concerns abated, in part because William Dudley, president of the Federal Reserve Bank of New York, tried to reassure participants that their fears were "misplaced," in an April 18 speech in Nashville, Tennessee.

On April 2, Sanders proposed the nonbinding budget amendment that asks the Fed to identify recipients of "loans and other financial assistance" since March 2005. The "average American" would say it's "insane" if they were told "we have put over $2 trillion of your money at risk and you don't know who has received that money or what the terms are," he said in the interview.

Bloomberg News filed a lawsuit against the Fed in November seeking the names of borrowers.

Sanders's amendment prompted opposition from Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, who offered a proposal the same day that doesn't ask the Fed to identify borrowers, even as it asks the central bank to provide more details on borrowers' collateral and the total number of companies seeking funds. It passed 96-2.

Taxpayer Costs

"If we end up naming those names, you could well trigger runs on those institutions, and that could end up costing the taxpayer a lot more," Dodd said during debate.

Either provision would need to be passed by Congress and signed by the president to gain the force of law.

On May 5, Bernanke said the Fed would increase disclosure in response to the Dodd measure, without mentioning the Sanders amendment. That prompted a statement from Sanders: "If Mr. Bernanke does not accept what we did in the budget resolution, we will pass it again in a stronger form."

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