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House Passes a Limited Wall Street Reform Bill

December 13, 2009

On Friday, the US House of Representatives passed the Wall Street Reform and Consumer Protection Act of 2009 by a vote of 223 – 202. Not one Republican voted for the bill and 27 Democrats voted against it.

The Grand Rapids Press ran an Associated Press article on Saturday about the House vote. The article began by saying that it was the, “most ambitious restructuring of federal financial regulations since the New Deal.”

The AP story cited President Obama, as well as Republican & Democratic lawmakers. In many ways the story is framed along partisan lines and at one point quotes White House Chief of Staff Rahm Emanuel as saying, “I didn’t expect them (GOP) to help after a meeting with 100 lobbyists for the financial industry.”

While it is true that Republican lawmakers received more money from Wall Street lobbyist this year, the Democrats were not far behind. According to the Center for Responsive Politics, those who loved against the bill have received an average of $849,000 from Wall Street over their career compared to $694,000 on average for those who supported it.

The AP article does not provide much in the way of details from the bill but does mention the creation of a Financial Services Oversight Council, which will be made up of the Treasury secretary, the Federal Reserve Chairman and heads of regulatory agencies.

Robert Weissman, the President of Public Citizen, said the bill “does not do nearly enough to rein in the Wall Street banksters. It is wholly incommensurate with the devastation Wall Street has wreaked across the land and planet.” In an article posted on Common Dreams, Weissman lists some of the major shortcomings of the House bill.

  • The bill does very little to address industry structure. Wall Street and the big banks engaged in reckless betting under the belief that they were too big to fail — that they were protected by a federal backstop. The biggest banks are now even bigger than they were before the crisis. The solution to the too-big-to-fail problem is to break up the big banks, so that the system can absorb their failure. The bill fails to impose limits on bank size.

  • A related problem is the intermixing of commercial and investment banking in single firms and resultant excessive risk taking by federal insurance-backed commercial banks. The bill fails to separate commercial and investment banking, as the Glass Steagall law did before repeal in 1999, or otherwise address this problem.
  • Financial derivatives and other exotic instruments — labeled by Warren Buffett as weapons of financial mass destruction — fueled the crisis. The bill contains very modest regulations over financial derivatives but leaves more than a quarter of the market free from regulation and contains loopholes to enable another substantial chunk to escape regulatory control. Even for derivatives covered by the bill, the new rules are very limited. The bill does not establish a regulated exchange for derivatives trades. It does not ban financial instruments that do little more than enable high-stakes gambling. And it does not require the purveyors of derivative instruments to prove that the benefits of their new products outweigh the costs and risks to the financial system.
  • The bill also fails to tackle seriously the problem of executive and high-level pay. Wall Street mocks the Congress — and the American people — by preparing to pay tens of billions of dollars in bonuses, in the shadow of a vote on financial regulation and while the financial sector continues to benefit from trillions of dollars of public supports.

One thing to keep in mind through this whole process has been the relationship of Obama and his economic advisors to the financial sector. Matt Taibbi has written an excellent piece in the most recent issue of Rolling Stone Magazine entitled, “Obama’s Big Sellout.” In this piece Taibbi takes a close look at how the Obama administration ditched his economic advisors from the election campaign and whom he brought in once he was in the White House.

One Comment leave one →
  1. August 30, 2010 7:29 pm

    Thanks for this post! This is a ton of great information on the bill in general. I’ve got a great post that shows some of the specifics of how this bill is going to affect individuals directly:

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