Early Sunday morning a man who lives two blocks from me died after he called the police, threatened to kill his girlfriend and himself, and the police shot him after he brandished a gun toward them. His girlfriend, fortunately not harmed, told the police that her boyfriend was distraught because he was unemployed. Just a few days ago, a friend recounted meeting a father who was full of shame, despair and feelings of inadequacy because he was losing his family's home in foreclosure and his ability to provide adequate shelter for his children was now uncertain.
While these stories of tragedy and hardship on Main Street continue to multiply, Wall Street is once again persuading Congress to dilute financial regulations proposed by the Obama administration to protect Main Street Americans against future financial meltdowns and to protect US taxpayers from having to again bail out banks who are reckless and "too big to fail."
The Obama administration introduced two primary pieces of legislation to protect us against another financial debacle -- regulation of derivatives and creation of a consumer financial protection agency to oversee financial products such as credit cards and loans. Even though the unemployment rate rose to 9.8% last month, wages are at a 19-year low, and home foreclosures jumped 29.2% from a year earlier, Wall Street is aggressively lobbying Congress to dilute the these regulations so they will not be impeded in their continuing pursuit of the almighty dollar. The top 5 banks reportedly were on track to earn more than $35 billion trading unregulated derivative contracts during the 2nd quarter of 2009 alone and regulation could cost them real money. So far it appears that Wall Street is succeeding.
On October 15, the House Financial Services Committee, chaired by Barney Frank, approved legislation to regulate derivatives that includes exemptions so big the proverbial truck can drive through it. For example, derivatives purchased for risk management are excluded from regulation. The AIG credit default swaps (which cost the taxpayers billions of dollars) would likely have been covered by this exemption since those were issued insure bond funds holding subprime debt against losses. Financial experts outside of Wall Street are dismayed at what is happening.
As reported by Bloomberg.com, Christopher Whalen, a managing director of Institutional Risk Analytics, described the Committee legislation as "clearly the weakest of all the proposals I've seen to date. Frank's committee seems to be intent on gutting any meaningful reform." Or, as reported by www.freerisk.org, Michael Greenberger, a University of Maryland law professor described the legislation as "a Christmas tree of decorative gifts to the banking industry. ...it's a return to the regulatory environment that led us into the meltdown. It would tie the hands of effective regulation by the CFTC to the detriment of economic recovery. The [Obama] administration had it completely right in its proposal."
And the banks are not only focusing on derivatives. They also oppose creation of a consumer financial protection agency to protect consumers from punitive interest rates, penalties and predatory practices on credit cards and loans. They claim that consumer protection would hurt consumers by reducing the amount of available credit. They also want the law to prevent states from regulating their activities (like the 2000 law that prohibited both federal and state regulation of derivatives, including state laws regulating gambling). Unlike NBA basketball games where referees try to make sure that both sides play by the rules, the banks don't want any referees overseeing their activities and don't want any rules.
Influence doesn't come cheap and the financial industry has been generous with its political contributions. According to The Center for Responsive Politics, the TARP recipients spent $77 million on lobbying and $37 million on political contributions. TARP paid them $295.2 billion for a return on investment of 258,449%. The Center for Responsive Politics further reports that, for the short 3-month period from July 1 through September 30, 2009, all members of Congress collected contributions totaling $48.3 million.
Many Americans feel powerless against the wall of money that corporate American and their hired lobbyists throw at Congress. We need to keep in mind, however, that while we may not be able to match money contributions, we have more votes than Wall Street and the lobbyists and we can vote out Congresspersons and Senators who bow to the wishes of the big money guys rather than protect their Main Street constituents. Ultimately, under our Constitution, average Americans hold the most power. We need to use it.
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