The old joke that circulates around Capitol Hill (at least on the House side) is that the Senate is Washingtons legislative hospice: a place where good bills and ideas go to die a slow and quiet death.
Many people in Washington, including myself, hoped that given the momentum and the necessity behind the financial reform debate that Congress has been engaged in since the worst of the crisis in the fall of 2008, this joke would be proved wrong. Unfortunately, as the reform package moves through the Senate, many of the reforms passed in the House legislation (H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009) including strong consumer protections and much-needed reforms to the structure of the financial services industry are being watered down. Those who have the best long-term interests of our consumers and our economy in mind need to speak out to oppose the Senates appeasement of the financial services lobby.
One of the first victims of this appeasement was the strong and independent Consumer Financial Protection Agency passed by the House in December. Instead of allowing this consumer protection watchdog to be independently run, the Senate legislation places the consumer agency under the purview of the Federal Reserve. Over the past few years, Ben Bernankes Federal Reserve has made significant gains on consumer protection regulation, and I commend them for their efforts.
But prior to the current chairman, the Fed was run for years by Alan Greenspan, a free-market ideologue who delayed much-needed changes to the Home Owners Equity Protection Act that could have prevented the mortgage crisis. We should not have to rely on a Federal Reserve chairman who is willing out of the goodness of his heart to put consumer protections in front of free-market zealotry. We need to keep the consumer protection agency outside the structure of any other banking regulator.
The next good idea that could fall victim to the Senates appeasement strategy of the Wall Street banks and lobbyists is Sen. Blanche Lincolns (D-Ark.) derivatives language that was passed by the Senate Agriculture, Nutrition and Forestry Committee. The language would require banks to spin off their trading desks so they could no longer get federal subsidies and backing while engaging in risky derivatives trading for their own profit. This change would put significant pressure on big banks to stop relying on risky trading for profits and instead return to what should be their true focus: lending to and investing in Main Street and thus creating real economic growth.
But finally we have the most egregious example of the Senates appeasement strategy for Wall Street lobbyists: the removal last week of the dissolution fund the funeral fund for firms when bankruptcy is not an option. The dissolution fund was an important amendment that I made sure was included in the House bill. However, the fund proposed by the Senate was weakened before it was even considered by decreasing its size from $150 billion in the House language to a mere $50 billion in the Senate bill. Lets just spell out what everyone who actually took the time to read this legislation knows: This is a fund to break up and sell off banks, not to keep them alive. It is anything but a bailout fund.
The fund was intended to act much like your car insurance by discouraging risky behavior. If a bank like Goldman Sachs decides to buy a new Ferrari and drive down the road with little regard for traffic regulations or public safety, it would be assessed far more in fees to the dissolution fund than a bank that drives safely, observes all the posted signals and always goes the speed limit. Under the new Senate plan, Goldman can drive its Ferrari all that it wants at whatever speeds it wants, and when it crashes and runs several others off the road, there will be nothing left to pay for the damages that it caused except for the broken, worthless pieces that are salvageable.
It is irresponsible for the Senate to drop such an important piece of the reform package when Democrats were actually winning the debate over the dissolution fund. Almost every credible source that reported on the cynical and disingenuous claims that this was a bailout fund found them to be just that: lies. Instead, in order to appease the Republicans and their Wall Street friends, Senate Democrats have given away one of the only pieces in the financial reform legislation that would actually hold the banks accountable for the risks they pose to the system and guaranteed that taxpayers would not have to pay for their failure in the future.
Appeasement of the opposition has never worked in history and will never work today. If the dissolution fund was the Sudetenland of the Wall Street reform fight, what is going to be the Czechoslovakia?
Rep. Luis Gutierrez (D-Ill.) is the chairman of the Financial Services Subcommittee on Financial Institutions and Consumer Credit.
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