Lehman Bros., one of the largest investment banks in the USA, filed for bankruptcy protection a decade ago Saturday and triggered the worst financial crisis in modern American history. In the aftermath of the financial system’s collapse, as the excesses of Wall Street were revealed to the American public, people were shocked that banks had been allowed to make such reckless bets with their money. It seemed absurd that there were no rules in place to prevent these bankers from playing roulette with the U.S. economy on the line.
In an effort to inflate profits for big banks, the Trump administration and Congress are setting us up for another crash.
Ten years later, many of the rules and regulations put in place to prevent such a crisis from happening again are under attack. It would have been unthinkable as recently as a few years ago, but in the past year we’ve actually seen banking deregulation legislation pass Congress. In an effort to inflate profits for big banks, the Trump administration and Congress are setting us up for another crash.
I can't believe I didn't see it coming
We need those rules. I know, because I was there. I was working at a financial firm that day in 2008, and I still remember talking to bond traders who were so scared of an economic collapse that they wanted to walk out of the office to buy gold coins and guns. When I left work, I wasn’t sure whether I would have a job to come back to the next day.
At the time it was shocking, but in retrospect, I can’t believe I didn’t see it coming. We had a system that encouraged risky behavior by giving banks all of the profits if their bets paid off, and putting taxpayers on the hook if they didn’t. If there’s no downside to gambling, then why not do it?
We had a system that encouraged risky behavior by giving banks all of the profits if their bets paid off, and putting taxpayers on the hook if they didn’t.
That’s why we should all be worried about Congress’ dedication to loosening regulations on banks and financial institutions. We need those regulations to keep Wall Street’s worst excesses in check.
The most significant piece of financial legislation passed in the aftermath of the financial crisis, Dodd-Frank, has been under attack for years. This spring, Congress finally succeeded in weakening oversight on most big banks, allowing even more “too big to fail” banks to go back to making risky investments.
In fact, after this rollback, just 12 big banks in America are still subject to the full federal oversight required in the original legislation. It actually classifies financial institutions such as American Express, KeyBank, BB&T and SunTrust as smaller banks that don’t need full regulatory oversight. It goes without saying that those are not the small community banks the Republicans said needed relief.
Similarly, the Trump administration has completely gutted the Consumer Financial Protection Bureau, a federal agency established by Dodd-Frank that was intended to protect consumers from predatory and abusive financial services providers such as banks, payday lenders and debt collectors. Under its previous management, it had helped more than 30 million Americans secure nearly $12 billion in restitution from abusive companies, but it’s being systematically dismantled by Trump appointees who openly say they want to serve banks and financial firms, not customers.
Repealing the rules puts us all at risk
Trump’s administration is also trying to change the Volcker Rule, which forces banks to keep their deposit funding and investment banking services separate. This basically means that banks aren’t allowed to take the money you put in your savings account (for which the taxpayers, through the Federal Deposit Insurance Corp., are ultimately on the hook) and use it on some speculative investment. There’s absolutely no reason, aside from bank executives and shareholders complaining that the rule keeps them from making as much money as they want, to roll back this rule.
It is simply absurd that as banks are raking in record profits, our government is most concerned with helping them make even more money.
It is simply absurd that as banks are raking in record profits, our government is most concerned with helping them make even more money. Federal officials have abdicated their responsibility to help consumers and to stop another crash. And make no mistake, that’s exactly what’s going to happen if all of these regulations are repealed.
There’s nothing inherently more safe about our financial markets now, and Wall Street isn’t any wiser. Trust me, I know better than anyone how people in the finance industry operate — they are rewarded for risky behavior. If they win, they keep the money. If they lose, taxpayers are on the hook to bail them out. Without adequate regulation, there’s no world in which bankers voluntarily refrain from taking reckless bets again and again, until we’re right back where we were 10 years ago.