The financial meltdown – triggered by incompetence, greed and outright fraud on Wall Street – has slammed the Sacramento region like few other places in the country. Families forfeited their homes. Retirees saw their nest eggs evaporate. Thousands have lost their jobs. And the pain isn’t nearly over in the deepest downturn in decades.
So the region has a personal stake in an overhaul of financial regulations to ensure that this never happens again. The crisis that started in the fall of 2008 was made worse because regulators, who were supposed to protect investors and taxpayers, looked the other way or were powerless to intervene.
Nearly two years after the crash, there’s finally renewed momentum in Congress on a package that would pull back some of the deregulation that Congress aided and abetted during the high-flying 1990s.
After failing to win any Republican support, Senate Banking Committee Chairman Christopher Dodd put forward legislation on Monday that would be a big step forward.
The 1,336-page bill would give the federal government more power to look for systemic risk and to seize companies whose collapse would precipitate another crisis. It would regulate hedge funds and derivatives markets. It represents the most sweeping change to financial regulations since the Great Depression.
Even Dodd would concede, however, that it is not as robust as a version the House passed in December, particularly when it comes to protecting consumers.
The Connecticut Democrat gave up his earlier push for an independent Consumer Financial Protection Agency, which is supported by consumer advocates but strongly opposed by the banking industry and business groups.
The House bill calls for such a separate agency whose mission would be to stop unscrupulous practices by financial services companies, including predatory lenders who peddled the subprime mortgages that caused the collapse of the housing market.
Instead, Dodd proposed a new consumer protection bureau, which would be housed inside the Federal Reserve and whose director would be appointed by the president and confirmed by the Senate. The bureau’s decisions could be vetoed by a two-thirds vote of a new nine-member council of federal regulators if they decided that a rule would put the banking system at risk.
House Speaker Nancy Pelosi and President Barack Obama both praised Dodd’s move, but also made clear they prefer the House bill. They should stick to their game plan.
But to get to a conference committee to hash out the differences between the House and Senate measures, the Senate must pass a bill first. And with a threatened GOP filibuster, that won’t happen without the support of at least one Republican.
The siren call to let Wall Street get back to business as usual to boost the economy might be tempting – especially when it’s softened with big-dollar campaign contributions. But lawmakers need to listen instead to the vast majority of Americans. Their livelihoods and futures seem at the whim of financial behemoths who want taxpayer bailouts but not the accountability that should be part of this bargain.