For too long, the big banks and financial institutions have been largely writing their own rules. Wall Street has squeezed Main Street while indiscriminately increasing credit card fees, offering mortgages that continually reset and creating new financial products like derivatives and credit swaps that allowed them to gamble with our money and our national economic security.
These banks and Wall Street firms recently gave out bonus and compensation amounts rivaling 2007's record-breaking levels -- all while families across the country continue to struggle with unemployment rates above 10 percent, mortgages that cost more than the homes are worth, and the anxiety of lost retirement and college savings.
The six largest firms alone - Goldman Sachs, Citigroup, JP Morgan, Bank of America, Wells Fargo and Morgan Stanley - have planned to pay out between $140 and $150 billion, even though their greed and recklessness did so much to cause our current financial crisis. JP Morgan, for example, announced on Jan. 15, it is setting aside $26.9 billion in compensation this year. On a per-employee basis that is a 38 percent increase from 2008 and a 20 percent increase from the 2007 pre-crisis numbers. Citigroup will pay $24.9 billion in compensation and bonuses. Despite its second quarter loss of $1.2 billion, Morgan Stanley set aside $3.9 billion.
This shows Wall Street believes nothing has changed, even though it has benefited from trillions of dollars in taxpayer support. The terrible truth is that so far, thanks to their own continued success in lobbying for their narrow interests, they are right.
As it stands now, they are free to continue the heads-they-win, tails-we-lose gouging and gambling that brought on the worst financial crisis since the Great Depression with far reaching global implications. And, apparently, they are free to pay their senior executives obscene sums to continue in that direction.
There is a way to level the playing field for everyday Coloradans. The administration is calling for financial reform, which has already passed in the U.S. House of Representatives and will be introduced in the U.S. Senate within a few weeks.
A major element of reform is a proposed Consumer Financial Protection Agency that will protect consumers from these abusive practices and hold banks accountable for their actions. The agency will help build a more robust economy by instilling confidence in our financial institutions. Recent polling shows strong bipartisan support for such an agency - 71 percent of Americans back the creation of a strong Consumer Financial Protection Agency.
Right now, there is no single independent agency responsible for regulating financial services companies, such as mortgage brokers, credit card companies or car loan businesses, to ensure they don't put misleading or economically dangerous products on the market.
Our economic history clearly shows the fragmented existing regulators have looked the other way much of the time on predatory mortgages, unfair credit card practices, triple-digit interest rates on payday loans, big overdraft loan fees for small debits, confusing fine print, and other consumer problems. In fact, since 1995, regulators have only charged one top-10 credit card company with breaking the law, even though consumers have filed thousands of complaints.
This is exactly why we need a new consumer-focused agency that has direct responsibility over the safety of basic financial consumer products that would then allow the existing regulators to focus on the safety of the larger financial system. Hard-working families and growing small businesses deserve someone to look out for them when banks use confusing terms and unfair practices and features in loans, checking accounts and other financial products.
But the financial industry is opposing real change every step of the way. In fact, the financial services industry spent a stunning $344 million on lobbying in the first three quarters of 2009, and they have more than 1,500 lobbyists registered to protect their interests.
These financial industry lobbyists weakened the House bill in key areas, like undermining rules to bring the trading of derivatives out into the open. Even though derivatives trading was a key source of the problems leading to the economic meltdown, it is a sacred cow to the very largest Wall Street banks due to the billions of dollars in profits they generate.
They want us to believe the Consumer Financial Protection Agency would put banks out of business or add costly regulation. But the goal of the agency is to guarantee safety, encourage innovation of safer products and reduce federal regulatory layers. It would mean that banks would have to compete based on who has the best products, not who has the best marketing strategy.
Our own Senator Michael Bennet serves on the U.S. Senate Banking Committee, where financial reform legislation will be debated later this month. Even though the financial services industry is redoubling its efforts to prevent or fatally water down the change we need, I urge Senator Bennet not to let this happen--there is too much at stake for Colorado and the country.
Consumers need and deserve to know that when they sign on the dotted line for a loan or a credit card that standing behind them is a watchdog agency with broad powers and a clear mandate to protect their interests. A Consumer Financial Protection Agency will do just that, and help prevent another horrifying economic meltdown.