Delays in financial reform hasten the next crisis
President Obama pulled no punches Thursday when he brought the case for financial reform to Wall Street’s own backyard, the Cooper Union in Manhattan.
He blamed the brink-of-doom fiscal meltdown two years ago on a “failure of responsibility” by bankers.
“The only people who ought to fear the kind of oversight and transparency that we’re proposing are those whose conduct will fail this scrutiny,” Obama pointedly told a gathering of some of the most prominent players in the money game.
He didn’t name names, but he didn’t have to. The federal government’s accusation of fraud against Goldman Sachs hung heavily over the proceedings, as did other recent episodes of questionable behavior involving financial behemoths.
“The banks are their own worst enemy,” said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group, a watchdog organization. “They’ve gotten hooked on greed.”
Yet, as with healthcare reform before it, financial reform faces an uphill battle from conservative forces that believe that bygones should be bygones, and that government officials should keep their snouts out of the private sector’s business.
And, as with healthcare reform, their strategy so far has been to delay any changes by insisting that we abandon recent legislative progress and start again from scratch.
“I think we need to get back to the table and get it fixed,” said Senate Minority Leader Mitch McConnell. “We want to make sure that we don’t set up a system whereby we empower the government to continue doing what they’ve been doing.”
Actually, what we want to do is set up a system whereby the government does what it was supposed to do all along, rather than sitting idly on the beach as the sharks go into a feeding frenzy.
“The system as it stands is what led to a series of massive, costly taxpayer bailouts,” Obama said Thursday. “And it’s only with reform that we can avoid a similar outcome in the future.”
Where were financial authorities while Goldman Sachs was allegedly defrauding investors by selling securities without telling anyone that they’d been largely designed to go down in flames?
Where were they as Washington Mutual handed out home loans to virtually anyone with a pulse and then resold the toxic debt to others, exacerbating the mortgage mess and leading to the largest bank failure in U.S. history?
Were government officials even awake as Lehman Bros. hid $50 billion in debt from bank examiners and investors with dubious accounting tricks before going bankrupt?
It seems ridiculous to even have to say this, but our existing regulatory system has failed spectacularly and helped bring about the worst economic crisis since the Great Depression.
The three main agencies overseeing consumer finances — the Office of Thrift Supervision, the Office of the Comptroller of the Currency and the Federal Reserve Board — have left people largely to fend for themselves as banks have indulged in what can only be characterized as sociopathic behavior, heedless of any sense of right and wrong.
It’s time to make some repairs.
Legislation that’s already passed in the House and is now pending in the Senate would do this. Among other things, the Senate bill would:
• Consolidate the consumer-protection responsibilities of half a dozen federal agencies into a single Consumer Financial Protection Agency with the resources to regulate mortgages, credit cards and other consumer products.
• Create a Financial Stability Oversight Council responsible for identifying and monitoring risks posed by brain-freezingly complex financial products and corporate structures.
• Establish new regulations for derivatives, the complicated and risky financial instruments at the heart of the mortgage meltdown.
• Impose new requirements on hedge funds worth more than $100 million. Such funds are currently responsible for huge financial transactions but operate mostly outside the regulatory framework.
In the face of polls showing that most Americans support some sort of crackdown on fat cats in the financial sector, Republicans have softened their hard-line opposition this week and indicated that maybe, just maybe, they’d be open to some sort of legislative compromise.
Much of the dickering now centers on a proposed $50-billion liquidation fund that would be used to help close down failed financial entities.
Proponents of reform say such a fund is necessary to prevent collapsing companies such as insurance giant AIG from bringing down the entire financial system. Critics say it would only encourage more bailouts, even though the fund would be paid for by banks, not taxpayers.
U.S. PIRG’s Mierzwinski said the Capitol is swarming with industry lobbyists trying to do everything possible to, if not kill financial reform, then water it down as much as possible.
“We’ve had to fight on a daily basis to keep the bill strong,” he said.
The latest salvo from big banks, which have been particularly opposed to creation of a Consumer Financial Protection Agency, was to declare this week that the Senate bill would harm community institutions.
These poor little banks “had nothing to do with causing the financial crisis,” said Edward Yingling, head of the American Bankers Assn., yet would face “a huge new expense” if forced to comply with new rules and regulations.
What next — the disastrous consequences of financial reform on puppies and kittens?
Enough already. Trust is something that is earned, and banks have only themselves to blame for the public’s belated recognition that these guys don’t play fair. The reform bills are a direct response to the industry’s own shenanigans.
“I want to urge you to join us, instead of fighting us in this effort,” Obama told Wall Street.
If the money guys heed that call, which they should, it would be a very welcome change.
David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5. Send your tips or feedback to email@example.com.