Sens. Olympia Snowe and Susan Collins have stood as staunch advocates for our interests amid the quagmire that has come to define politics in Washington, D.C. Now the push for reform of Wall Street and other financial services has reached a crucial — and historic — turning point. Our two senators have played a critical role in advancing these commonsense reforms, and we urge them to continue their support as Congress moves to the last step of enactment.
With lost jobs, homes and savings, Maine families, like millions of others across the county, have suffered from a broken financial system represented by well-paid lobbyists and slick public relations gurus for Wall Street, run by the big banks and other lenders whose irresponsible practices largely caused this crisis in the first place. I need not remind anyone that this mess led to the biggest taxpayer-funded bailout in U.S. history.
Yet many of the big bankers who caused the mess continue to earn millions in bonuses. Guess who’s financing their bonuses, paychecks and political donations? You and me. In 2008, these banks were rewarded with hundreds of billions of taxpayer dollars under the rationale (in which I believed) that these funds were needed to prevent further collapse of the financial system, even though their own reckless practices brought our economy to the brink of collapse.
The good news is that Sens. Collins and Snowe voted for much-needed reform for our financial system. Under the financial reform legislation, the government no longer will be able to bail out financial institutions when they fail (rationale: if the rest of the system reform contains the correct regulation, it would not be needed). Thus no more bailouts that fund big bonuses.
In a related matter, reckless lenders who pushed the predatory loan madness which in turn fueled the foreclosure epidemic were paid handsomely, and when their house of cards collapsed, taxpayers were handed the bill. The latest report from Maine’s Bureau of Financial Institutions shows 1,415 foreclosure filings in Penobscot County alone between June 2009 and March 2010.
As congressional hearings into Goldman Sachs and others show, Wall Street was not only behind these doomed-to-fail loans but they literally bet that many of them would fail. In effect, Wall Street’s business model was to make money creating the loans, and make money when they failed, then collect huge bonuses, leaving tax-payers to pay the bill. Heads they won; tails taxpayers, small businesses and families lost.
The legislation now before Congress would prevent Wall Street from placing these high-stakes bets, especially with taxpayer money. It would rein in Wall Street’s ability to promote risky products while betting the products will fail. It would also require these firms to put more of their own money at risk, so that when they run into trouble they’ll have to exhaust their own “rainy day fund” rather than asking the government for help.
Finally, it would bring sunshine to the shadowy world of derivatives, such as AIG’s infamous credit default swaps, by requiring that these contracts be traded on public exchanges. Some say the legislation doesn’t go far enough (others, of course, say it goes too far), but no one can dispute that it’s a vast improvement over the current system that let unscrupulous practices flood the marketplace like oil from a broken pipe. We’ve had the bailouts. Now we need the watchdog.
A key change would be the creation of a Consumer Financial Protection Agency that would consolidate and streamline existing consumer protection authority that presently is scattered across many agencies resulting in consumer protections largely being ignored. It would ensure better, more effective and more efficient rule-making procedures that would result in stronger consumer protections to address problems such as credit card practices and abusive debit card fees.
The crisis shows that unfair lending practices steal families’ hard-earned wages and undermine the entire economy. Maine has led the way with state laws to curb risky lending. Sens. Snowe and Collins have held fast to these values by casting critical votes in support of this consumer agency.
But the job is not done. As House and Senate lawmakers reconcile differences between their two versions of the legislation, Wall Street lobbyists, auto lenders and others are fighting to gut the final outcome. In addition, some parts of the bill need clarification to ensure they are effective.
For example, an amendment sponsored by Sen. Snowe for all the right reasons would, in practice, have unintended consequences. It would let small businesses influence proposed consumer protection rules before the public sees them. We hope this provision will be reworked before final enactment so that small businesses are protected, but bad apples such as foreclosure scam companies, debt settlement companies and payday lenders can’t stall badly needed protections.
Lawmakers need to take the best provisions from the Senate and House bills to produce the strongest final financial reform bill possible, one that protects Main Street not Wall Street. Sens. Snowe and Collins have protected Maine’s interests by voting for this legislation. As we cross the finish line, let’s hope their leadership in-spires their fellow lawmakers to work to complete strong, commonsense, much-needed reform for Maine and all of the country.
Peter Bowman of Kittery represents District 1 in the Maine Senate. He is chairman of the Joint Standing Committee on Insurance and Financial Services.