Silly me.

Here I thought that the rule of law actually mattered, and that when the good guys triumphed (three times — twice in Congress, once in the courts) the battle was over, we could enjoy the moment and brace for the next fight. As I wrote yesterday, “The proposed rule that came out from the Fed a while back was reasonably fair to the retailers, which was a major upset given how kind to Wall Street banks the Fed has historically been.”

Silly me for forgetting about the immeasurable political influence of the big banks:

The Federal Reserve said Wednesday that banks can only charge retailers 21 cents each time they swipe a debit card.

The board raised the cap from its initial proposal of 12 cents per swipe. Banks and big payment processors like Visa and Mastercard convinced the Fed that was too low to cover the cost of handling transactions, maintaining networks and preventing fraud.

Banks currently have no limit and charge an average of 44 cents per swipe.

It’s uncommon for the Fed, or any other government regulators for that matter, to change their rules dramatically during the comment period, but this change is a big deal. It’s simply offensive that the Board of Governors decided to give another handout to the Too Big to Fail financial institutions in this manner.

This ruling also pushed back the implementation deadline to Oct. 1, which is later than expected (And for every month that swipe fee reform is delayed, banks snag an extra $1.35 billion in fees, according to The Nilson Report.)

As I wrote yesterday, the Too Big to Fail banks are so big and so powerful that they win almost every battle and undermine almost every regulation — and it has happened again. Today’s craven sellout to the big boys by the Fed is one more reminder of why we need to break these banks apart so they don’t keep running roughshod over our democracy.

Ultimately, there are only two things that will help rescue our economy — and our democracy — from the dangers posed to us by Too Big to Fail banks.

The first is to arrest a lot of Wall Street bank executives for the massive and intentional fraud perpetrated on homeowners, clients, shareholders, and taxpayers. Crimes were clearly committed in great numbers, and those who commit large numbers of crimes — serious, egregious, intentional crimes — should be prosecuted. The kinds of very modest negotiated fines we see coming out of the SEC from time to time — a couple hundred million dollars paid by the shareholders of companies whose quarterly profits and executive bonuses are in the billions — are just not going to change the criminal behavior of so many of those executives.

The second is to break up the Too Big to Fail banks. Period. As long as these banks are as huge as they are (the six largest own assets equivalent to 64 percent of America’s GDP), if they teeter at all, no matter the cause, they will have to be bailed out. And as long as they are that big and powerful — economically and politically — they will always have the ability to unduly influence and, yes, capture and corrupt regulators, members of Congress, and judges so that whatever restraints might be proposed or put on them are eventually weakened, watered down, or swept away. Institutions that big and wealthy and powerful are a threat to our economy and the very basis of our pluralistic democracy.

In the meantime, though, until these two big fundamental things begin to happen, we are left with more modest legislative and regulatory action. This Wednesday, after a brutal fight involving last year’s financial reform legislation, a more recent amendment fight in the Senate, and an exhaustive round of regulatory review by the Federal Reserve, it looks like we will finally have a new regulation put in place on the swipe fee issue — which until now had been completely unregulated and had allowed the big banks and credit card companies to run completely roughshod over consumers and small businesses. I have been working on this issue as part of a truly strange coalition of consumer groups and retailers. The proposed rule that came out from the Fed a while back was reasonably fair to the retailers, which was a major upset given how kind to Wall Street banks the Fed has historically been. This prompted the big banks to scream bloody murder and try to delay the rule in Congress. But after they were once again defeated in another big upset (big Wall Street banks rarely lose Congressional fights either), the rulemaking is going forward. Let’s hope Wall Street doesn’t have another sleazy trick up its sleeve and the Fed finally puts in place the kind of modest new rule they first proposed on swipe fees.

As long as these Wall Street banks are this powerful, this kind of very small reform on very modest issues is all we are left with in terms of restraining these banks. But we’ll take whatever we can get. Let’s hope the Federal Reserve does the right thing on Wednesday.

One of the saddest stories in American politics, which happens all too often, is when small and medium sized community-based businesses lobby against common-sense regulations that would help them compete against the big-business conglomerates that dominate their industry. Because of a knee-jerk fear of any regulation, a lot of times the big companies will convince their smaller brethren to be the lead lobbyists fighting something that would actually go a long ways in helping the small guys have a more level playing field with the big dogs.

The classic example lately is on banking policy. The six biggest banks in America control assets equaling more than 64 percent of our national GDP, and because they are Too Big To Fail, they end up getting major market advantages over smaller financial institutions. These Wall Street behemoths’ economic clout is making it harder and harder for credit unions and smaller community banks to survive, which is a terrible shame because they are the ones who do most investing in small businesses at the local level. In the financial reform bill that was passed last year, most of the regulations that were passed were designed to create oversight of these biggest banks and leave the smaller ones alone, since the problems that caused the financial collapse were all centered in what the big banks were doing, yet the smaller banks and credit unions frequently sided with the big banks out of a mindless fear of any regulation at all.

One important aspect of this is an issue I have been working on a lot with a coalition of retail businesses and consumer groups, swipe fee reform. If you live in D.C. or in a state or congressional district targeted by the bankers, it’s tough to miss the ubiquitous and alarming ads about how Congress wants to take away your debit card. These confusing advertisements — sponsored by the Electronic Payments Coalition (read: Bank of America, Capital One, Citi, JPMorgan Chase, MasterCard, Visa, et al.) — imply that banks will be so robbed by the swipe fee cap in the 2010 Wall Street reform law that their customers will have to do without things like free checking and debit cards.

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New York Communities for Change on Vimeo.

Humanity’s literature from the very earliest days has many stories of hubris and arrogance that ring true. Icarus got too close to the sun, and had his wings burned off. Goliath got a little too cocky with the kid with the slingshot. Lady Macbeth’s dreams of glory turned to ashes. Pride goeth before the fall indeed.

It happens in literature so much because it happens to humans so much. In my career in politics, I have seen it happen over and over again, from the highest of levels to the ones you’ve never heard of, like the 26-year-old junior staffer at the Clinton White House I once heard yelling into the phone “Don’t you know who I am?” who was fired shortly after. There are plenty of arrogant politicians walking around D.C. today bragging about everything they are going to do that I suspect won’t be here very much longer.

But there is no match at all for the hubris of Wall Street bankers. They are convinced they really are masters of the universe, but I think they will be heading for a fall. It may be soon, it might take a little while given the money they have and the politicians in their pocket, but you cannot be that arrogant and not be in for a serious fall.

Just to recap: the financial industry talked politician after politician from both parties into one round of deregulation after another, all the while increasingly consolidating the industry while inventing more and more exotic kinds of financial speculation (derivatives, credit default swaps, CDOs, etc., etc., ad nauseam). There were warning signs aplenty- the S&L debacle, Long-Term Capital Management, an early version of a subprime derivative collapse, the Mexico currency collapse, the Thai currency collapse, the corporate accounting scandals of the early 2000s — and each time some combination of the Federal Reserve and/or American taxpayers directly had to step in and save the day. The warning signs were not only ignored, but more deregulation usually happened on top of the old kinds. When the big collapse happened in 2008, the American economy and entire world economy were sent into collapse and panic, only to be saved by the biggest corporate bailouts in history by far.

Now you may find me biased, but this essential summary as far as I can tell seems to be pretty much accepted by just about every author on the financial collapse, financial blogger and reporter, the Angelides commission, the TARP oversight board: pretty much everyone who has looked into the collapse except those being paid by Wall Street bankers. And given all that, you would think the corporate PR guys for these big banks would be advising their clients to lay low for a while, make a show of how badly they felt, do at least some symbolic belt-tightening and some early retirements for the most visibly corrupt executives, maybe make some major donations to charities. On Capitol Hill, you would think the lobbyists they hire would advise them to show some amount of humility at congressional hearings, to make clear in their public statements that they totally understand the need for some “modernization” of regulations (even while fighting to soften the blow behind the scenes as much as possible), and to make sure their longtime allies on the Hill know they didn’t need to spend a lot of political capital right now defending them — that the best strategy was to quiet things down and delay or soften things, not to make a lot of noise.

But the Wall Street guys are so arrogant, so completely used to running the world and having everyone bow down to them, that they just fundamentally don’t get it. They give themselves record setting bonuses the year after taxpayers bailed them out. They fought every minor restraint on their power in the battle over financial reform last year, and now their Capitol Hill allies are planning to re-open the whole battle again with new legislation rolling back key components of the bill like the Consumer Financial Protection Bureau, derivative regulation, and swipe-fee regulation. They get their allies on the Hill to beat up on Elizabeth Warren because she is actually trying to help consumers. They bitterly and loudly complained to reporters and anyone who would listen about President Obama saying a few mildly populist about them during the financial reform fight last year, even though Obama’s Treasury Secretary and most of his other appointees have been fairly friendly to bankers throughout his term in office. They complain about the moral hazard of helping homeowners who are underwater on their mortgages despite taking the bailout money when their own bets went bad.

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Disturbing numbers being reported from the housing sector are a reminder that America is in real danger of a Lost-Decade-of-Japan kind of situation if we don’t do something serious about the ground zero of our economic collapse: Wall Street.

There are a wide variety of serious long-term issues that we have to deal with in order to reverse the decline of America’s middle class — rebuilding our manufacturing sector and infrastructure, strengthening the labor movement so that middle-class wages begin rising again, breaking up the concentrated economic power in sectors like banking and insurance, and restoring our tax base by making sure wealthy individuals and corporations are paying their fair share would be my top four long-term priorities to achieve this goal — but in the short run, we cannot fix our economy without taking on the big Wall Street banks and making dramatic changes to revive the housing sector.

Three different sets of numbers on housing caught my eye this morning:

1. The percentage of homeowners with underwater mortgages — where the value of a mortgage exceeds the value of the property — has now climbed to 28.4 percent. It has been at around a quarter of all (single-family) home mortgages, but is continuing to climb, edging closer to a third. This is a truly stunning number, especially when you consider how many homeowners are in their second or even third decade of paying off their mortgage.

2. Housing prices continue their decline, in fact scoring their biggest quarterly drop since the crash months in 2008. Home values have declined a net 29.5 percent since their peak in 2006, and after a modest increase after the 2008 crash, started declining again last fall and are now at their lowest level, making them equal to the bottom point of the crash. And analysts expect them to continue to fall for another year at least.

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