For Immediate Release
With Passage of Reform Bill, House Takes Key Step in Reregulating Financial Sector
Statement of Robert Weissman, President, Public Citizen
WASHINGTON - 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
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.
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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.