Want to Save Our Economy from Almighty Greed? Here Are 10 Crucial Fights and Key Fighters to Watch
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Let's face it, financial regulation is boring and complicated. But if the economic crisis taught us anything, it's that bringing Wall Street under control is one of the most critical domestic policies facing the country right now.
Here's what you need to know, and who you need to watch, as Congress readies its banking overhaul.
1. A New Consumer Financial Protection Agency. Subprime mortgages. Abusive and arbitrary rate hikes on your credit card. Payday loans. If you're wondering who lets banks get away with this crap, there are more people at it than you think. There are no less than four federal regulators responsible for overseeing consumer protection in finance, and all of them are terrible.
Regulators currently are responsible not only for keeping consumers safe from predation but for ensuring the "safety and soundness" of banks -- that is, keeping banks from failing.
Not surprisingly, sometimes what's best for bank balance sheets doesn't exactly jive with the interests of consumers. If banks can fend off failure by gouging you on your credit card, they're going to do it, and regulators aren't going to lift a finger to stop them.
What's worse, regulators actually compete to prove to banks how lax they can be at enforcing consumer protections. Each agency is funded by taxes it levies on banks it regulates, and banks can choose who they want to regulate them. If one agency is too tough, the bank can switch regulators. The result is a race-to-the bottom in regulatory standards where the interests of consumers are ignored.
The obvious solution is to give these consumer-protection responsibilities to a single regulator with no such conflicts and with the power to enforce uniform standards across the entire industry. That's what President Barack Obama proposed in June, and it was by far the most significant reform on his Wall Street agenda.
Unfortunately, the bank lobby has seriously watered down the bill in Congress. One of the chief advocates for the CFPA, Rep. Brad Miller, D-N.C., sponsored an amendment exempting 8,000 of the nation's 8,200 banks from the CFPA's oversight.
And it's getting worse -- the powers of the agency are being diminished with every committee. The latest one subjected the CFPA director to input from other commissioners and regulators from the same agencies that failed to prevent the current crisis.
These destructive amendments can be stripped out on the House floor, but only if Speaker Nancy Pelosi, D-Calif., has the political will to make it happen.
2. Too big to fail. Here's an idea: Let's give a handful of firms on Wall Street so much economic power that if they ever fail, the entire economy will collapse with them. Sound good? Of course not. But sadly, that's what Wall Street looks like today, and the problem has actually gotten worse since the financial crisis began because troubled firms have been eaten up in a flurry of mergers with stronger behemoths to stave off catastrophe.
The solution? Break up the banks to a size where failure does not destroy the economy, and ban banks from participating in the capital markets casino. Similarly, companies that engage in speculative, risky securities trading would be banned from doing the boring, economically essential banking activities such as accepting deposits and making loans.
With the two types of banking separated, we have a useful banking sector to support the economy even if the Wild West finance hits the skids.
Obama and his inner circle of advisers have no interest in breaking up the banks or ending too-big-to-fail. Their plan to deal with "too big to fail" would codify the government's ability to bailout big firms with an unlimited amount of loans, guarantees and asset purchases.