Pay No Attention to the Banker Behind the Curtain: Why the Republican "Alternative" Leaves Wall Street Pulling the Strings
By John Taylor
I've a feeling we're not in Kansas anymore, Toto. The battle over Wall Street reform oddly resembles a scene from the Wizard of Oz: given that we lost 8.2 million jobs, millions of homes, and trillions of dollars in savings, why would the GOP play political chicken and risk another financial crisis with their efforts to stall, weaken, or defeat the financial reform bill? Maybe it's because their Wall Street maidens are behind the curtain, fighting financial reform while pulling the purse strings and filling the GOP's coffers with cash.
But there is hope on the horizon; after months of negotiations in which they complained about nearly every measure put forward by Democrats, the Republicans have stopped filibustering - for the moment -- and have authored their own plan! If you can call their 20 page Wall Street tax break proposal a reform plan; their bill leaves American taxpayers on the hook for the next financial crisis, because it does nothing to fundamentally change the way Wall Street does business. While the plan is not expected to go anywhere, it represents the Republican party's vision for financial reform, and reflects many of the amendments they are offering.
Of course, a reform plan is only as good as your understanding of the problem, and so far, most Republicans in Congress seem to think that poor and minority borrowers, the Community Reinvestment Act (CRA), and Fannie Mae and Freddie Mac are to blame for the avarice and recklessness of Wall Street banks. The first idea is preposterous and offensive. The idea that CRA caused the crisis has no basis in fact, and has been widely discredited. And the third? Well, a new study from the National Community Reinvestment Coalition, the organization I work for, shows that loans backed by Fannie Mae and Freddie Mac were half as likely to go into foreclosure as those backed by Wall Street, or held in portfolio, among loans in the Washington, DC metropolitan area.
If anything, the Dodd financial reform bill should be strengthened. That being said, the GOP proposal doesn't rise to the level of reform, or an "alternative," because it largely maintains the status quo. Instead of creating an independent and robust Consumer Financial Protection Agency, it leaves consumers in the hands of a consumer protection Council, headed by existing regulators; it creates numerous carve-out exceptions to become the rule; it ties the hands of States from protecting their citizens; and it fails to prevent large financial institutions from engaging in the same risky behavior that led to the economic crisis in the first place.
Here are five reasons why American consumers should hope the Republican "Alternative" is all just a dream:
- A House is Not A Home. And a Council is not an Agency. Instead of providing for a strong, truly independent Consumer Financial Protection Agency, the GOP "alternative" calls for a Council, headed by the Chairman of the Federal Reserve. Without an independent agency to pass tough new rules, the bad practices that caused this economic crisis will continue and our communities will continue to suffer losses. We need Congress to pass a strong Wall Street reform bill, with an independent Consumer Financial Protection Agency.
- Burn Me Twice, Shame on Me! The GOP's "alternative" continues with business as usual by putting the same regulators who failed to act to prevent this economic crisis in the first place in charge of consumer protections. Instead of creating a truly independent Consumer Financial Protection Agency, armed with people dedicated to protecting everyday Americans, Republicans want to stack their "council" with existing regulators. We know that consumer protections are critical for Americans families and small businesses alike. We cannot afford the status quo.
- The Exception Becomes The Rule. We need a Consumer Financial Protection Agency to regulate the entire range of products and practices in consumer lending, so that it can address problems promptly and effectively. Under the GOP "alternative" there are massive carve-outs for payday lenders, auto dealers, check cashers, debt collectors and others, regardless of their size or impact on consumers. Because regulation of these industries would be forced to go through a complicated and lengthy process, bad products would be able infiltrate the market long before anything can be done to prevent them. Instead, a CFPA would be able to effectively ensure that consumers are protected from dangerous products.
- Destroying States' Ability to Protect Citizens. In an attempt to weaken consumer protection from all sides, the GOP "alternative" destroys the role of States in enforcing consumer protections altogether. Despite the fact that States are on the ground working to solve these problems and can respond quickly to enforce consumer protections, the GOP wants to effectively tie their hands. When it comes to protecting American families, why would anyone be in favor of putting fewer cops on the street?
- Risky Business - The GOP "alternative" fails to make financial institutions clean up their act! Without tougher capital, leverage, and liquidity requirements, American families remain at risk of future economic collapses, while large financial institutions remain free to dodge accountability for the damage they have done to our financial system and to Main Street. Instead of prohibiting proprietary trading of taxpayer-insured funds, the GOP leaves taxpayers on the hook for when these risky trades go bad. Congress must pass strong financial reforms to ensure that financial institutions remain accountable to Main Street for what they do on Wall Street!
Sound like more of the same? That's because it is. Given this weak plan, it seems like politicians from the red states want the nation to remain in the red - and I bet their voters would be appalled to know that the very Wall Street firms that created the crisis are standing behind the GOP, with cash in hand. With numerous polls showing financial reform is popular with over 60% of Americans, it would be hard to imagine the Republicans standing in the way of the popular tide for very long.
At least one Republican has already distanced himself from the GOP plan. I'm hoping that's the start of a sea change, and we will wake up one day soon to find that our leaders have done the right thing, and fundamentally reformed the financial system. But given the shakedown of Wall Street happening on at least one side of the aisle, I'm wondering if maybe that's all just a dream? There's no place like home, there's no place like home, there's no place like home...