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Financial Reform Bill

Wall Street: Another mess to clean up

Marketplace Staff Jun 16, 2010
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Financial Reform Bill

Wall Street: Another mess to clean up

Marketplace Staff Jun 16, 2010
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TEXT OF COMMENTARY

Robert Reich: Far removed from the Gulf of Mexico is another mess that’s not getting cleaned up. I’m talking about Wall Street’s excesses that almost led to financial meltdown followed by huge taxpayer-financed bailout.

Kai Ryssdal: Our regular commentator and former Clinton Administration Labor Secretary, Robert Reich.


Robert Reich: Now the big banks are back taking big risks and paying big bonuses. But where’s financial reform?

Senate and House conferees are meeting this week to iron out a final bill. But heavy lobbying by the big banks, and the administration’s lack of support for tougher measures, is undermining the effort.

One important step would be Sen. Blanche Lincoln’s measure in the Senate bill to seal off high-risk investment banking from routine commercial lending. It would force banks to do their risky derivative trading in a separate subsidiary that can’t draw on insured deposits.

The big banks hate this because it would require they hold more capital against losses, thereby cutting into their profits. They’re pressuring lawmakers to drop it. But the alternative, as we’ve seen, is for those losses to be dumped on taxpayers.

A second step would be the so-called Volcker rule. It would prevent big banks from trading on their own accounts or investing in hedge funds or private equity funds. The banks hate this, too. They’d accept the Senate version calling for a study and then a long regulatory process, because it would allow them to delay and kill the measure.

Meanwhile, the conference committee isn’t interested in capping the size of the big banks or breaking them up. Yet, these are the only ways to stop them from being too big to fail and having the political clout to prevent genuine reform.

Sadly, the administration isn’t behind any of these. The Treasury doesn’t want Blanche Lincoln’s measure or a strong version of the Volcker rule or any attempt to control the size of the banks. And the Treasury is a key player in the conference committee.

The president was in the Gulf railing against runaway corporate power and inadequate regulation that led to the worst environmental disaster in American history. But back in Washington, his Treasury secretary is back-peddling on reforms responding to one of the worst financial disasters in history.

Ryssdal: Robert Reich teaches public policy at the University of California, Berkeley.

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