New York -- Yesterday as I entered Federal Hall in the heart of Wall Street to hear President Barack Obama's speech, a huge crowd gathered outside the building hoping for a glimpse of President Obama. Inside the hall I sat down with 150 Wall Street executives, government officials, including Tim Geithner and Mayor Bloomberg and a few citizen activists, to hear his speech. The activists included Phyllis Salowe-Kaye from New Jersey Citizen Action (NJCA) and other members of Americans for Financial Reform (AFR).
We were hoping to hear a tough speech warning Wall Street to mend its ways and support new regulations to protect consumers. We were not disappointed. A year after the fall of Lehman Brothers, Obama, pointed his finger at big bank presidents and the Gorden Gekkos of Wall Street and said, "I want everybody here to hear my words: We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses."
While Obama made it clear that he strongly supports what I consider the most important reform, the Consumer Financial Protection Agency, (CFPA) HR 3126, its future remains in doubt. CFPA creates a separate standalone agency with the sole mission of protecting consumers. The creation of that agency should be the top priority for Congress. It's the key reform to protect consumers from financial abuse. As Salowe-Kaye said to me, "It's a crazy situation...that if you buy a toxic toaster, you have the Consumer Product Safety Commission to protect you from harm," But there's nothing to protect us from toxic loans."
The CFPA proposed by the president would have broad institutional oversight of enforcement responsibilities for the wide range of financial consumer protection laws already in place, including CRA, and bolsters the chances of passage of the Community Reinvestment Modernization Act of 2009, which now has 50 co-sponsors in the House including New Jersey Rep. Donald M. Payne (D-10th Dist.). This law would expand CRA's reach to non-bank financial institutions. It is common sense to have independent mortgage companies and other non-bank lenders subject to the same rules as banks. All businesses making loans should be subject to the same rules.
Community Reinvestment Act CRA is one of the most important laws for building wealth and revitalizing neighborhoods. It helps keep banks honest by making them report specific loan data for low- and moderate-income neighborhoods, ensuring that consumers in traditionally underserved communities have access to safe, sound and affordable mortgages and home equity loans. If the CRA had been applied to those non-bank financial institutions, we would have avoided the present foreclosure and financial crisis.
To make sure financial reform passes quickly, all sorts of groups are joining the Americans for Financial Reform (AFR), a national coalition of more than 200 national, state and local consumer, employee, investor, community and civil rights organizations spearheading a national campaign for real reform in our banking and financial system. The coalition includes USAction, AARP, ACORN, private financial firms like American Income Life Insurance Company, AFL-CIO, Common Cause, Consumer Federation of America, and Public Citizen.
Up until now, efforts to gain a measure of democratic control over the financial sector have been scattered and localized, responding to different aspects of the bank-induced crisis. AFR was organized, according to Heather Booth, director of the newly formed AFR, "to provide a loud, unified voice needed to call for transparency and accountability in the financial bailout." To counter the immense power of the finance industry, AFR has been mobilizing on multiple levels, from Capitol Hill to neighborhoods decimated by factory shutdowns and home foreclosures.
Although Obama did a good job reminding the public that he had no choice but to strengthen the enforcement of regulations overseeing Wall Street, I am concerned about whether his administration has the stomach to keep up the attack on Wall Street greed. It is well documented that the cause of the economic crisis was deregulation and securitization pushed by Wall Street. After more than two decades of a Wall Street supported system of unfair, abusive, deceptive, mortgage loans, we must change the system. (See for example,"Foreclosing on the Free Market: How to Remedy the Subprime Catastrophe."John Atlas; Peter Dreier; Gregory D. Squires, New Labor Forum: A Journal of Ideas, Analysis, and Debate, 1095-7960, Volume 17, Issue 3, 2008, Pages 18 - 30)
The entire financial and housing system participated in a greedy shell game. Mortgage brokers brought borrowers to the lenders using deception. Many made higher commissions for selling high interest sub prime mortgages to customers who qualified for prime loans. Mortgage companies provided the mortgages using deceptive sales practices and charging high unregulated interest rates and fees. Wall Street firms packaged the sub-prime loans into exotic investments that no one understood. Credit agencies cheated on the ratings. Greenspan and the regulators kept pumping money into the economy and instead of oversight, they looked the other way.
Business as usual led to massive foreclosures and the bankruptcy filing of Lehman Brothers Holdings Inc., at that time the fourth-largest investment bank in the country. Its failure sparked a panic on Wall Street and served as the ignition to the worst economic downturn since the Great Depression.
I believe its time for the government to exert tough new control over the financial services industry. Polls show that a majority of the American people agree.
Deregulation flourished because Americans were sold a flawed economic philosophy that said we need an "unfettered free market" to increase homeownership and bring about prosperity. And that it was a conservative movement pushing this philosophy got us into our current crisis, and only a complete reversal of the Bush era policies and philosophy can get us out. We need to remind the public that the philosophy of small government, cutting taxes for the rich, and deregulation should be dead in the water.
Public polling has shown enormous disenchantment with policies of financial deregulation, banks in general and Wall Street in particular, so we expect public sentiment on our side.
As the speech ended I remembered what I thought a year ago, when Wall Street was hated by virtually all of us because its shenanigans and had destroyed our economy. Congress should have held hearings publicizing Wall Street's misdeeds lashing our out at Regan, Bush and Clinton for their support of deregulation. After Obama entered office I thought he should have broken rank with Paulsen and Geithner and pushed the TARP money directly into the hands of American working people who were losing there homes and jobs. Then, Obama and the Democrats would have been embraced by the American people and would have undermined the Republican and right wing's ability to reach out to independents, and put the Democrats on the defense.
Still I don't think its too late to win and besides we have no choice but to fight for what we believe. Now we have a national organization to support our local efforts. AFR's four priorities are correct.
- Renegotiate mortgages to prevent foreclosures and keep people in their homes.
- Support a strong Consumer Financial Protection Agency that will scrutinize the entire banking industry.
- Regulate "shadow markets," where financial transactions occur without any oversight.
- Democratize the Federal Reserve, which now essentially functions as a quasi-private bank despite the vast public power it commands.
Banks and the U.S. Chamber of Commerce will fight Obama's proposal to strip consumer protection from the current assorted regulators and give it to a new agency that would have that as a single mission. We all need to join in the fight.
John Atlas is the president of The National Housing Institute (NHI), founded in 1975 as an independent nonprofit organization dedicated to fostering decent, affordable housing and a vibrant community for everyone.