The aspect of the banking regulatory bill that will benefit consumers most in the long term is, doubtlessly, the creation of a new consumer protection agency. Its critics can rant all they want about how the agency will be superfluous, that all it is adding is more paperwork, but perhaps they remember the international fraud cases, focused in America and Europe, last year. Or maybe they recall the US's experience with Bernie Madoff? Or even the shoddy business practices by Wall Street companies that abetted the recession. The agencies already in existence failed here, and they have failed in scores of other cases. The new organization can cover these gaps, protecting Americans from fraud and malpractice in an unprecedented way.
The only way, however, that this agency can operate effectively and not go the way of, for example, the Minerals Managment Service, is if the person heading up the agency truly is devoted to its purpose. The work of Elizabeth Warren, who has been deeply involved in the creation of the agency, puts her in the best position to lead the group.
If the agency is properly headed and effectively run, the regulations it enforces can truly protect Americans to a much further extent than any predecessors. And isn't that the most basic reason for progress in government for a functioning society?
[Photo credit: topnews.net]
Last year, failing banks handed out billions in bonuses to executives after taxpayers had bailed them out, rationalized by politicians calling these banking conglomerates 'too big to fail'. Now, the Obama Administration and Congress have taken a major, sweeping step towards ensuring that no bank is to big to fail and that never again will a late-night vote taken by Congress lead to taxpayer dollars being shoveled into the pockets of bloated banks.
The banking regulation reform bill orchestrated by Senator Chis Dodd and Representative Barney Frank, for whom the bill is named, will protect American consumers more than any financial regulations in history. In the past, nearly a dozen shrunken agencies were tasked with protecting consumers in different areas of the complex financial market. Resultantly, some areas were overprotected, with the bureaucratic mess making true consumer advocacy nearly impossible, while other sectors of the market were left completely untouched. Now, one reaching organization will protect Americans from all practices in the financial markets. Additionally, tough restrictions will provide new stability in the markets while pruning practices that endanger Americans.
Still, this bill is not quite as reaching as it ought to be. While in theory banks may now be 'too big to fail', this only applies to taxpayer bailouts. Banks can still combine and bloat, becoming impossible to regulate by any agency. Gramm-Leach-Blily, the law that allows consumer banking to meld with banking insurance companies and insure themselves is still enacted, creating a dangerous investment for consumers who assumed their finances were protected. Also, though regulation is now tougher than ever, the government is still unable to insure against taxpayer-hurting practices, like Wall St. banks frivolous handling of the TARP funds last year.
Even though the new law is far from perfect, it offers protection to consumers like never before. If the current regulations had been enacted a few years ago, the Goldman-Sachs fraud case would have been either more sparse or would have not happened at all, due entirely to the creation of the new protection agency.
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When corporations make seemingly wrong or immoral decisions, such as the bad investments allegedly sold by Goldman-Sachs or the massive bonuses given by failing, taxpayer reliant banks during the height of the financial crisis, Americans tend to blame these companies. However, no matter how horrifically immoral these private interests act, they are just that- private, for-profit businesses. They act as expected, in the best interest of their profits. It is not their responsibility to act with appreciation for the American consumer of the US economy; rather, it is the job of regulators. Irresponsible and immoral action by corporations is the fault of poor regulation and of regulators who do not fulfill their jobs.
Due to the privatized nature of the American economy, there is a paramount need for the US government to protect consumers. It is important that regulators are conscientious and unbiased judges for the American people, unlike those involved in the companies they regulate, like members of both the Treasury Department and the Department of Interior.
The 2008 economic crisis was a result of un-meticulous regulation by the federal government. The mining disaster in West Virginia could have been prevented if regulations had been stricter. If, historically, oil companies were better restricted, the BP oil spill would not have been so incredibly massive.
Critics call strong regulation overreaching by the federal government. However, it is the very job and nature of the US government to protect consumers, and, often, through regulation. Created “for the people, by the people”, it is the responsibility of the people’s government to act on behalf of and protect its citizens, whether this is from outside forces or from the nation’s own companies. The only way the American government can fully do this is to actively advocate and regulate.
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Paul Krugman
"[The Obama Administration officials] seem not to have learned, even now, that the right has an awesome ability to create its own reality: that Mitch McConnell et al would stand in the way of reform while claiming to be taking a stand against Wall Street."
This quarter, Citigroup- who still owes bailout funds to the American taxpayers- reported netting 4.4 billion dollars while 9.6 percent of Americans are still listed as unemployed and the tentatively recovering economy is creating jobs at a less than ideal rate. Somehow, the banks, whose reckless lending and side-stepping of government regulators were major causes of the 2008 financial breakdown, have come out of the crisis relatively unscathed while average Americans still suffer. As President Obama moves on from health care and returns to the economy and energy issues, among others, the importance of fixing the broken regulatory system has taken precedent.
The lack of regulation and the resulting actions of the banks were major catalysts for the damaging financial crisis during the last presidential election. Although Obama's economy-saving efforts began with government spending, job creation, and tax breaks, he has now turned to fixing the root problem: the banks. The first step will have to be ending the sweeping deregulation of the nineties, but there is more to be done. In Chis Dodd's Senate plan to re-regulate the banks, the derivatives market will be brought under control, a Consumer Financial Protection Agency, initial steps to downsize overly large banks, and other heightened regulations. This is hardly a final or a comprehensive plan, but it acts as an effective first step to reform.
Following the recent bitterly partisan health care debate, the bipartisan distaste for the banks in Congress is not enough to override the deep idealogical divides over regulation. Originally, Mitch McConnell had gotten all 41 Republicans in Senate to agree to voting against any reform plan, but as the public case against Goldman Sachs began to emerge, some Republicans backtracked slightly. Certainly the contentious nature of government involvement in the banking sector will continue this debate, though some hopeful comments have been made by newly-elected Senator Scott Brown, indicating support for some of the reforms and a willingness to work with the Democratic caucus.
The American government cannot fix everything on their own. Already, European nations have been extraordinarily proactive in challenging banks. British Prime Minister Gordon Brown has began to order an investigation of the actions of Goldman Sachs because of major losses of a massive bank based in England, and Germany has threatened to take similar action. Hopefully, these legal movements along with increased regulation- and more attentive regulators, for the ones over the past few years were truly asleep at the wheel- in the United States will help to ensure that a global financial breakdown like the one in 2008 is prevented, or at least postponed.
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Barney Frank
"George Bush appointed people [to financial regulation positions] who didn't believe in doing their job."
During last Wednesday's State of the Union Address, President Obama discussed plans to fine banks, which had, after accepting stimulus funds, awarded sizable bonuses to employees and not fully repaid the American taxpayer. Unfortunately, this minimal planned restriction does nothing to override the sweeping deregulation in the nineties that contributed to the 2008 financial breakdown.
This deregulation was most notably caused by the Gramm-Leach-Bliley Act of 1999, which allowed commercial banks, investment banks, securities firms and insurance companies to combine, making them practically not able to be regulated by the US government. The act also left combination banks free to loan their investment sides money to spend on other endeavors and with the ability to insure themselves- so that if they were ever in need of insurance, they would actually be unable to provide it.
During the hight of the US financial crisis, when the banks were being bailed out, many politicians talked about the banks being 'too big to fail'. The size of the bailed out banks was due to their consolidation with other companies- like Citigroup, which used to just be Citibank- which, in turn, was due to the passage of Gramm-Leach-Bliley. And yet, over ten years and a financial meltdown after it's passage, Gramm-Leach-Bliley is still an applicable piece of legislation.
As President Obama makes compromise after compromise with the still unsupportive Republicans, he cannot allow financial regulation and reform to wait any longer, if he wishes to prevent another banking crash that must be paid for by taxpayers. He can start by asking Congress to retract Gramm-Leach-Bliley.
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