In the Public Interest: Rein in the Financial System That Failed

03/18/2010 05:12 am ET | Updated May 25, 2011

Four Tests for the House This Week

More than 14 months after taxpayers were forced to bail out Wall Street bankers, Congress is finally considering reforms to protect the rest of us.

On Wednesday and Thursday, the House considers the Wall Street Reform and Consumer Protection Act of 2009. It isn't perfect, but its passage - without weakening amendments, and ideally, strengthening the amendments added - will be an important step toward preventing another financial crisis.

We can only hope it's not too late. After all, the non-partisan Center for Responsible Lending predicts that at least nine million additional foreclosures will occur from 2009-2012.

For those of you keeping score, here are four key tests for the House of Representatives this week:

1) Will Congress enact a strong version of the Obama administration's game-changer Consumer Financial Protection Agency? The CFPA was conceptualized by Professor Elizabeth Warren. It's backed by economists ranging from Nobel Laureate Joseph Stiglitz (PDF) ("It will take risk out of the system") to Moody's Economy chief economist Mark Zandi ("an FDA for consumer products").

The CFPA's critical reforms include:
• it will be independent
• it will regulate all financial products, regardless of which bank, payday lender or other non-bank sells them
• its rules will reinstate federal law as a floor, not a ceiling, of protection.

The key question on the CFPA test: Stronger state laws.
Will the House reject the anticipated Rep. Melissa Bean (D-IL) amendment to undercut the agency by reinstating current law's provision preempting stronger state laws and state attorney general enforcement? Nearly all attorneys general recently sent Congress a letter opposing such a move. Bean's own state Attorney General, Lisa Madigan, has been among the national leaders in suing predatory lenders and an outspoken champion for reform.

The House should also reject efforts to eliminate the CFPA's authority to ban forced arbitration. And, Congress needs to place car dealers back under the CFPA.

2) Will Congress regulate the shadow markets? Will Congress finally put cops on the beat in all the unregulated derivative, hedge fund, and private equity shadow markets? AIG once reigned as king of the derivatives called "credit default swaps." Bad bets on these swaps led to the collapse of the financial system and the loss - for workers, homeowners, small investors and other retirees - of millions of jobs and trillions of dollars of value in their homes, 401-Ks, pension funds and even their children's 529 college funds.

3) Will Congress audit the Fed? Will Congress take unchecked power from the Federal Reserve, which ignored the growth of both the housing bubble and the predatory lending that went with it? Will it enact the "audit the Fed" reforms bill that has over 300 co-sponsors (HR 1207)?

4) Will Congress end the too-big-to-fail system that led to taxpayer-funded TARP bailouts? Right now, Wall Street banks, their executives and shareholders don't have to worry about taking stupid risks, because they can rely on the government to bail them out. They're supposedly too important to the economy or "too big to fail." Even though banks aren't back to making loans, they're already back to paying the big fat bonuses that contributed to this disastrous culture of private profits and public risk.

These reforms seem obvious to taxpayers. Not to Wall Street. They like the system that failed. It's served them well. So, they're trying to keep it that way. Bloomberg News reports that out of 1,537 lobbyists registered to work on financial reform issues, 1,479 are industry hired guns... gunning to save the system that failed. They outnumber consumer advocates by 25 to one.

The U.S. Chamber of Commerce is with them, running a well-publicized multi-million dollar "Stop the CFPA" campaign featuring your neighborhood butcher. Who knew reform would stop him from cutting meat? It won't, as the President recently explained.

In my 20 years in Washington, I've witnessed the deregulation of the financial marketplace and the ruin that goes along with it. That's why, along with other organizations, like the Consumer Federation of America, the AARP, SEIU and the AFL-CIO, I am determined not to let it happen again.

U.S. PIRG helped found Americans for Financial Reform, now comprised of over 200 of America's leading consumer, civil rights, senior, worker and investor protection groups.

Still, we could use your help. The lenders are already "crowing" that reform is dead. Call Congress at 202-225-3121 and ask your Representative to join with Americans for Financial Reform in supporting the strongest possible reforms. Urge support for strengthening amendments to the Wall Street Reform and Consumer Protection Act. Ask them to oppose the Bean preemption and other weakening amendments. If and when we get this through the House this week, we'll keep you informed of our next steps in the Senate.