So, that happened. On Thursday, 354 members of the House of Representatives voted to give banks $17 billion, basically just to thank them for being banks.
All but two Republicans voted for the measure, including all but one member of the hyper-conservative Freedom Caucus, which frequently lambasts the grip of “crony capitalism” in Washington. Only 70 Democrats voted against the measure, mostly members of the Progressive Caucus.
Listen to HuffPost’s analysis of the bank subsidy, the 2016 presidential race and more this week’s “So, That Happened” podcast, embedded above.
So how did so many lawmakers end up voting to just hand $17 billion to banks?
Congressional negotiators have been scrambling for months to find potential spending cuts that could offset new funding to fix roads and bridges. Republicans have refused to consider any tax increases to support the infrastructure spending, making any potential source of frivolous spending a target.
Enter the Progressive Caucus. Every year, the coalition of dozens of Democrats releases an annual budget proposal. With Republicans in control of the House, it’s a largely symbolic measure that essentially lays out the priorities of liberal lawmakers. But the budget released last year included an item that most members of Congress had never heard of: “Ending Excessive Fed Dividends For Wall Street.”
The Progressive Caucus had been studying the Federal Reserve and discovered that the central bank pays billions of dollars a year in dividends to banks in the U.S. It wasn’t exactly a secret, but not many people on Capitol Hill knew it was going on, partly because the practice is so old — dating back to the creation of the central bank. Cutting those dividend payments in half would shift $17 billion from banks to federal coffers.
The measure disappeared for months after the Progressive Caucus released its budget. But this summer, the Senate picked up the proposal as a way to help pay for new highway funding. After years of living with tight budgets from the automatic budget cuts known as the sequester, there just aren’t that many easy targets for spending cuts in the federal budget. And the House initially followed the Senate’s lead, including the dividend cut plan in its original version of the highway bill.
But on Thursday, Rep. Randy Neugebauer (R-Texas) introduced an amendment to preserve the bank dividends. In its place, Neugebauer would gut the Fed’s surplus capital — a fund the central bank uses to cushion against temporary losses that it incurs as a normal part of its everyday operations.
Slashing government payments to banks, of course, makes banks angry. But slashing the Fed’s capital surplus is dangerous. Without the surplus, the Fed may be forced to focus more on turning a profit than on effectively managing the economy, driving up interest rates and unemployment in order to avoid taking political heat for being underfunded.
But making banks angry is a no-no on Capitol Hill. So 241 Republicans and 113 Democrats voted to mess with monetary policy instead of trimming the amount of free money banks receive from the federal government.
This podcast was produced and edited by Adriana Usero and Peter James Callahan, and engineered by Brad Shannon, with assistance from Christine Conetta.
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