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FOR IMMEDIATE RELEASE
CONTACT: Public Citizen
With Passage of Reform Bill, House Takes Key Step in Reregulating Financial Sector
Statement of Robert Weissman, President, Public Citizen
WASHINGTON - December 11 - With passage of the Wall Street Reform and Consumer Protection Act of 2009, the U.S. House of Representatives today takes an important first step in reregulating the financial sector.
Most importantly, the bill creates a powerful financial consumer watchdog agency. Had the Consumer Financial Protection Agency existed during the go-go years earlier this decade, it could have prevented millions of consumers from being ripped off - and protected the banks from themselves. The financial crisis would have been significantly less severe.
It also contains some modestly beneficial provisions in investor protection, establishing liability for credit ratings firms, regulating derivatives and imposing leverage limits on the largest institutions. And it includes an important measure for a comprehensive public auditing of the Federal Reserve. But the bill doesn’t do nearly enough to rein in the Wall Street banksters and is wholly incommensurate with the devastation Wall Street has wreaked across the land.
The bill does very little to address industry structure. Wall Street and the big banks engaged in reckless betting under the belief that they were too big to fail - that they were protected by a federal backstop. The biggest banks are now bigger than they were before the crisis. The solution to the too-big-to-fail problem is to break up the big banks so that the system can absorb their failure.
The bill fails to impose limits on bank size. A related problem is the intermixing of commercial and investment banking in single firms and resultant excessive risk taking by federal insurance-backed commercial banks. The bill fails to separate commercial and investment banking, and otherwise address this problem. Financial derivatives and other exotic instruments - labeled by Warren Buffett as weapons of financial mass destruction - fueled the crisis. The bill contains very modest regulations over financial derivatives but leaves more than a quarter of the market free from regulation and contains loopholes to enable another substantial chunk to escape regulatory control. Even for derivatives covered by the bill, the new rules are very limited. The bill does not establish a regulated exchange for derivatives trades. It does not ban financial instruments that do little other than enable high-stakes gambling. And it does not require the purveyors of derivative instruments to prove that the benefits of their new products outweigh the costs and risks to the financial system.
The bill also fails to tackle seriously the problem of executive and high-level pay. Wall Street mocks the Congress - and the American people - by preparing to pay tens of billions of dollars in bonuses in the shadow of a vote on financial regulation and while the financial sector continues to benefit from trillions of dollars of public support. At a minimum, we need binding rules to mandate that bonus pay be tied to long-term performance.
It’s no mystery why this legislation is not stronger. Wall Street spent $5 billion in political investments in the decade before the financial crisis to obtain deregulation and nonenforcement of existing rules. Despite Wall Street having crashed the economy, nothing has changed on Capitol Hill. Wall Street continues to invest heavily in politics and wield enormous influence. More than 900 former federal employees, including 70 former members of Congress, are working as lobbyists for the financial services sector this year. Wall Street has spent more than $40 million on campaign contributions since November 2008. But Wall Street was not wholly able to get its way. Leading Wall Street lobbyists announced at the outset that they intended to “kill” the Consumer Financial Protection Agency, and they failed.
We are pleased that the CFPA will be able to limit forced arbitration and that financial industry workers will be empowered to blow the whistle on wrongdoing. However, the bill should not allow states to be pre-empted on a case-by-case basis.
Public Citizen thanks House Speaker Nancy Pelosi (D-Calif.), Financial Services Committee Chairman Barney Frank (D-Mass.), and Reps. Brad Miller (D-N.C.), Dennis Moore (D-Kan.) Melvin Watt (D-N.C.) and Steny Hoyer (D-Md.).
Public Citizen has been very pleased to work with our colleagues in Americans for Financial Reform to mobilize the citizenry to ensure that Congress listened to strongly demands for consumer protection and controls over Wall Street. We have taken an important step today. As this bill moves to Senate, we will work to protect its achievements - and insist that the Senate impose additional controls on Wall Street.
VIEW a .pdf chart of pros and cons of the legislation.
LEARN more about financial reform.