Editorial: New rules for Wall Street
In a three-month period last fall, as some of the giants of Wall Street crumbled or teetered on the brink, Americans lost $5 trillion in household wealth. That disaster plunged the world into the longest, deepest recession in 80 years, the effects of which are still being felt.
There is plenty of blame to go around for the financial meltdown of 2008. Both lenders and borrowers behaved irresponsibly, especially in the home mortgage sector. Bond rating agencies and credit rating agencies hid the truth instead of exposing it. Over a period of decades, Congress deregulated financial services without regard to the potential for trouble. Regulators were asleep at the switch, in agencies unable to keep up with a new generation of exotic financial instruments.
The markets have stabilized since then, largely thanks to huge infusions of taxpayer money, and the banks and investment houses that survived are dealing out huge bonuses to their executives. But many of the structural problems that led to the crash are still there. To fail to fix the defects in the financial system would compound the irresponsibility that caused the crash.
The House made a start toward fixing the system last week, approving wide-ranging reforms. Its bill calls for:
- Creating a consumer protection agency charged with setting rules for mortgages, credit cards, loans and other financial products.
- Giving shareholders the right to vote on executive compensation packages in all companies, and letting regulators ban risky compensation practices at banks and financial firms.
- Reorganizing some federal regulatory agencies and creating a council of regulators to monitor the market.
- Regulating derivatives and requiring they be traded on public clearinghouses subject to federal oversight.
- Creating a $150 billion fund - through assessments on large financial institutions - to cover the future costs of dissolving any "too-big-to-fail" companies that fall into crisis.
- Increasing transparency by requiring hedge funds and private equity funds worth more than $150 million register with the SEC.
Like all products of the Congressional sausage factory, this bill is far from perfect. Even as finance industry lobbyists cry over the new burdens it imposes, consumer advocates cite loopholes plenty large enough for the speculators to keep playing their games. It has yet to surface in the Senate where, current experience indicates, reforms get weakened, not strengthened.
The House bill, shepherded by Rep. Barney Frank, chairman of the Financial Services Committee, passed, 223 to 202, without a single Republican vote. The faux populists on the Republican side, having spent the last year in the embrace of the big insurance companies, are now carrying the water for Wall Street, which, according to reports, spent more than $344 million lobbying Congress in the first three quarters of this year.
In a classic display of hardball politics, the same companies bailed out of bankruptcy by the federal government are using their profits to inflate the next speculative bubble and keep the government from spoiling their game. This bill, House Majority Leader Steny Hoyer said, "puts the referees back on the field." It's the least Congress can do to avoid the next financial calamity.
The MetroWest Daily News