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:
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...