A year after the U.S. government put up hundreds of billions of taxpayer dollars to bail out big banks and stabilize our economy, far too little has been done to change the risky behavior on Wall Street that precipitated this economic crisis.
Regulation is not enough to mitigate the continuing risks posed to our financial system -- we need to make sure banks are no longer allowed to become "too big to fail."
To do that, we must reinstate rules that separate risky investment banking and trading activities from the commercial activities of traditional banks that take deposits and offer home, car, and business loans.
Such rules were implemented in the 1930s under the Glass-Steagall Act in response to the Great Depression. Sixty years later, they were largely repealed under the Gramm-Leach-Bliley Act that tore down the firewall separating traditional banking from more speculative and risky trading. At the time, Wall Street bankers assured us that our advanced form of capitalism had the right safeguards in place to regulate the additional risk. We now know they were wrong.
The Wall Street crowd says that reinstating such rules isn't necessary, and why would they say otherwise? Almost nothing has changed. Wall Street profits are up and bonuses are soaring -- back to the sky-high levels seen before the markets crashed in 2008 and drove us into the worst economic ditch since the Great Depression. The top three Wall Street investment houses -- Goldman Sachs, JP Morgan Chase, and Morgan Stanley -- made $7.5 billion in profits in the last quarter alone, and are expected to pay about $30 billion in bonuses this year, up 60 percent from last year.
Meanwhile, the devastating impact of the economic meltdown is still being felt across Ohio. Small businesses are still struggling to get access to credit in Zanesville; middle-class families continue to lose their homes in Dayton; and too many financial institutions are still operating in a time machine, hoping to return to the carefree days before their reckless behavior brought our economy to the brink of collapse.
Even when important legislation is passed to protect consumers, the financial industry moves quickly to exploit any loophole. Congress passed a bill this summer reining in the ability of credit card companies to jack up interest rates with little cause or notice. Unwilling to abide by these fair and appropriate new guidelines, credit card companies are racing to hike fees before the new rules take effect in February, raising rates on millions of Americans. I support the work of Senator Sherrod Brown, Congresswoman Betty Sutton, and others who are leading the fight to prohibit this money grab by the credit card companies and are working to freeze rates in place until the new rules apply.
This kind of naked profit grabbing has made it very clear -- we simply cannot rely on the financial services industry alone to look out for American consumers. While I support the Obama Administration's proposal to create a new Consumer Financial Protection Agency to protect Americans from predatory loans and soaring credit card rates, additional oversight is not enough to protect our financial system from the continuing risky behavior seen on Wall Street. It's time for us to put the brakes on the consolidation of massive financial companies that have now been deemed "too big to fail."
As long as financial conglomerates believe that the federal government will always be there to bail them out, they will have no incentives to reduce their risky trading activities and keep more capital on hand to hedge against losses.
It's time we returned to the good old days when Wall Street traders risked their clients' money and their own funds without jeopardizing the financial stability of our country in the process.
Lee Fisher is Ohio's Lieutenant Governor and is running for the U.S. Senate in 2010. Please visit FisherForOhio.com to learn more about his campaign.