In September of 2008, the American economy teetered on the brink of collapse because the foundation of our financial system began to crumble. The extraordinary actions taken by the Federal Reserve, the Bush Administration, and a bipartisan majority in Congress rescued our economy from being driven back to the Dark Ages.
After nearly two years of study, discussion, and intense legislative negotiations, a select group of House and Senate lawmakers have produced a final bill that I believe will significantly strengthen the financial system which is not only the essential underpinning of our American economy, but also a cornerstone of the global financial system. In order to better protect each and every American and our financial system, I therefore strongly urge my colleagues in the House and Senate to approve this bill and send it to the President for his signature by the Fourth of July.
Historians will argue probably for decades about the causes of the 2008 credit crunch that ushered in what is being called the "Great Recession," but it is impossible to deny that one huge contributing factor was the failure of government regulators to rein in financial institutions. Giant firms like the American International Group (AIG) engaged in recklessly risky behavior that rewarded them with huge profits during the build-up of the housing bubble, but then nearly wiped them out when the bubble burst in 2008. The Bush Administration asked the Congress to create the $700 billion Troubled Asset Relief Program (TARP) to prop up our country's financial infrastructure, without which our economy would have been in a much more dire situation than we have experienced.
Rarely have I encountered such outrage as that expressed by my constituents who believed that TARP was a "bail-out of Wall Street." The very titans of the financial system who caused the economic collapse were seen as being rewarded with tax dollars while my constituents were losing their jobs, losing their pensions, and losing hope.
Then-Secretary of the Treasury Hank Paulson and Federal Reserve Chairman Ben Bernanke insisted to Congress that rescuing the existing financial system was the only way to avoid a decades-long depression likely to be even more painful than the Great Depression of the 1930s, as the people of the United States would have to painstakingly reconstruct a financial infrastructure from scratch. We needed to act in order to ensure that workers continued to get paid and families could use their ATM cards.
Those terrifying months in late 2008 convinced me that the federal government needed to play a far more active role in policing the activities of the major financial players in our economy. My top priority was to avoid having any future Congress face the same dilemma that I faced with my colleagues in 2008: "bail out Wall Street" or risk the collapse of the entire American economy. I decided that the most important element of any reform of the financial system needed to ensure that no financial firm could be allowed to become so big, interconnected, and risky that its failure would endanger the whole economy again in the future.
My amendment to empower federal regulators to rein in, and even dismantle if necessary, those firms whose very existence threatened the entire system was adopted by the House when we approved Wall Street reform legislation in December of 2009. The Senate adopted a similar provision, and I am pleased that the final conference bill completed this week contains almost everything that I originally proposed. I am also pleased that the final agreement contains the essence of the Volcker rule. Inspired by the legendary former Federal Reserve Chairman, Paul Volcker, this provision will prevent banks from engaging in highly speculative activities that in good times produce enormous profits but in bad times can lead to collapse.
There are many other worthwhile provisions included in this sizeable package, some of which I have been working on for many years to enact, and there are a few things I would have taken out. Nevertheless, the bill is an historic achievement.
In sum, I am proud of the work I did to help make it possible, and I am in awe of the leadership shown by House Chairman Barney Frank and Senate Chairman Chris Dodd as they corralled this enormously complex legislation into reality. This bill deserved to be named the Dodd-Frank Act. Their leadership will lead to a new era of American prosperity and financial stability for decades to come.
Congressman Paul E. Kanjorski serves as the Chairman of the U.S. House of Representatives Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. He represents the 11th Congressional District of Pennsylvania. He was one of the conferees on the House-Senate Wall Street reform conference committee.