Senator Feingold: Financial Reform ‘Caves’ to Wall Street

WASHINGTON – Wall Street and its allies have been calling the shots in Congress for decades, so they must be glad to see how things are shaping up on financial regulatory reform. Congress is about to vote on a final bill that fails to fix the key flaws in the bills passed by both the House and Senate. At the start of this process I made clear that I had a simple test for financial reform — will it stop another financial meltdown? This bill fails that test, and I won’t support legislation that fails to protect the people of Wisconsin from the pain of another economic disaster. And I don’t need to be lectured about this issue by people who supported the repeal of Glass-Steagall, which paved the way for this terrible recession.

I had hoped I would be able to support the legislation, given the clear need for strong reform. I cosponsored a number of critical amendments during Senate consideration of the bill including a Cantwell-McCain amendment to restore Glass-Steagall safeguards, Senator Dorgan’s amendment that addressed the problem of “too big to fail” financial institutions, and another “too big to fail” reform offered by Senators Brown and Kaufman that proposed strict limits on the size of those institutions. Each of those amendments would have improved the bill significantly, and each of them either failed or was blocked from even getting a vote.

After that, it wasn’t a close call for me. It would be a huge mistake to pass a bill that purports to re-regulate the financial industry but is simply too weak to protect people from the recklessness of Wall Street. That would be like building an impressive-looking dam without telling everyone that it has a few leaks in it. False security is no security at all.

Since the Senate bill passed, I have had a number of conversations with key members of the administration, Senate leadership and the conference committee that drafted the final bill. Unfortunately, not once has anyone suggested in those conversations the possibility of strengthening the bill to address my concerns and win my support. People want my vote, but they want it for a bill that, while including some positive provisions, has Wall Street’s fingerprints all over it.

In fact, reports indicate that the administration and conference leaders have gone to significant lengths to avoid making the bill stronger. Rather than discussing with me ways to strengthen the bill, for example, they chose to eliminate a levy that was to be imposed on the largest banks and hedge funds in order to obtain the vote of members who prefer a weaker bill. Nothing could be more revealing of the true position of those who are crafting this legislation. They had a choice between pursuing a weaker bill or a stronger one. Their decision is clear.

On this bill, like the others that preceded it, the biggest financial interests have won.

I’ve seen this too many times before. When I was in the Wisconsin State Senate, I chaired the Senate Banking Committee for nearly a decade, and fought against enactment of an interstate banking law that resulted in the concentration of financial assets and most large Wisconsin banks being bought up by even larger out-of-state banks.

Shortly after I came to the U.S. Senate we considered a national interstate banking bill, the Riegle-Neal Interstate Banking and Branching Act of 1994, which accelerated the concentration of financial assets, and the creation of “too big to fail” firms. I was one of only four senators to oppose that legislation. Five years later, I was one of only eight Senators to oppose the Gramm-Leach-Bliley Act, the bill that repealed Glass-Steagall and paved the way for this disastrous recession, which has been an economic nightmare for so many Americans.

Those two measures — the 1994 law and the 1999 law — accelerated the trend toward increased concentration of financial assets, aggravating the problem of “too big to fail.” Before those two laws were enacted, the six largest U.S. banks had assets equal to 17 percent of our GDP. Today the six largest U.S. banks have assets equal to more than 60 percent of our GDP.

Ultimately, it was the threat of the failure of the nation’s largest financial institutions that spurred the Wall Street bailout. I opposed that measure as well, in part because it was not tied to any fundamental reforms of our financial system that would prevent a future crisis and the need for another bailout. We could have had a much tougher reform package if the bailout had been tied to such a measure.

Every single one of those bills caved to Wall Street and the biggest financial interests, and so does the current regulatory reform bill. Economist Dean Baker called this bill a “fig leaf,” and former IMF Economist Simon Johnson has slammed the bill’s failure to address “too big to fail.” These experts paint an accurate picture of this bill’s failings, and frankly those failings shouldn’t come as a surprise. Many of the critical actors who shaped this bill were present at the creation of the financial crisis. They supported the enactment of Gramm-Leach-Bliley, deregulating derivatives, even the massive Interstate Banking bill that helped grease the “too big to fail” skids. It shouldn’t be a surprise to anyone that the final version of the bill looks the way it does, or that I won’t fall in line with their version of “reform.”

This bill caves to Wall Street interests, it doesn’t meet the test of preventing another financial crisis, and it won’t get my vote.