While Officials Examine Causes of Financial Crisis, Bank Chiefs Still Engaging in Reckless Practices

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While Officials Examine Causes of Financial Crisis, Bank Chiefs Still Engaging in Reckless Practices

Statement of Robert Weissman, President, Public Citizen

WASHINGTON - As the Banksters swoop into town, the Angelides Commission has an
enormous challenge ahead of it: While we know a great deal about what
led to the financial crisis, we face an accountability gap wider than
the Grand Canyon. The Angelides Commission must identify the specific
practices that contributed to the crisis and out the perpetrators,
including high-level figures on Wall Street and in government. The
recently released AIG e-mails indicating that the New York Federal
Reserve, then headed by current Treasury Secretary Timothy Geithner,
instructed AIG not to identify its credit default swap counterparties
is illustrative of the kind of granular reporting and revelations that
are needed.

While the commission digs into the past, we must also recognize that
we do in fact know a great deal about the causes of the financial
collapse – and that Wall Street and the big banks are still engaging in
the same reckless practices.

1) Financial
institutions are still doling out enormous compensation in the form of
salaries and bonuses that rewards risky behavior and short-term
performance. Touted reforms are mostly cosmetic changes.
2) Major banks gobbled up other major financial institutions that were failing, worsening the too-big-to-fail problem.
3) Speculative betting is still rampant, with financial institutions recording profits largely due to proprietary trading.
4) Banks are still ripping off consumers on such basic things as overdraft protection and fees.
5) There has been a total failure to deal with the mortgage meltdown.
Only a small fraction of mortgage loans have been modified, with only a
tiny few adjustments of principal. Millions of homeowners, many of whom
have lost their jobs, are still suffering under crushing payments.
Millions of families are needlessly being thrown out of their homes.
6) Wall Street’s influence in Washington is as great as ever,
notwithstanding that the financial sector has crashed the national and
global economies.

Absent far-reaching reform efforts, there is every reason to suspect
these practices will, at some point, lead to the same results.

Congress should ensure that commercial banks are not engaged in
risky speculative betting; break up the too-big-to-fail banks; prohibit
risky financial instruments that serve no social purpose; adopt
comprehensive campaign finance reform; and ensure that international
agreements do not constrain the country’s ability to regulate properly.
As Wall Street prepares to roll out annual bonuses, atop the
congressional reform agenda should be a crackdown on abusive
compensation practices, starting with a windfall bonus tax.

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Public Citizen is a national, nonprofit consumer advocacy organization founded in 1971 to represent consumer interests in Congress, the executive branch and the courts.

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