Editors’ Note: Yesterday, Feingold voted to filibuster the senate’s financial reform bill. In this May 6 speech on the floor he explains his objections to the legislation. — JSC / AC
I am glad the Senate is finally considering the critically important issue of financial regulatory reform. Few things are as important as ensuring we never again suffer the kind of meltdown in the financial markets that shoved our economy into the worst recession since the Great Depression.
It remains to be seen if this bill will do that. While it includes some good reforms, more needs to be done, and the track record of Congress in this area is at best checkered.
For the last thirty years, Presidents and Congresses have consistently given in to Wall Street lobbyists and weakened essential safeguards. And as has been the case in so many areas, members of both political parties are to blame. Legislation that paved the way for the creation of massive Wall Street entities and removed essential protections for our economy passed with overwhelming bipartisan support.
From the Savings and Loan crisis in the late 1980s to the more recent financial crisis that triggered the horrible economic downturn from which we are still recovering, those three decades of bipartisan blunders have been devastating for our Nation. And the price of those blunders has been paid by homeowners, Main Street businesses, retirees, and millions of families facing an uncertain economic future.
The impact of the recent financial crisis on the Nation’s economy has been enormous. Millions have lost their job, and millions more lucky enough to have a job are forced to work fewer hours than they want and need to work. According to a study done by the Pew Trust, the financial crisis cost American households an average of nearly $5,800 in lost income.
And, of course, families lost a significant amount of personal savings. As a nation, we lost $7.4 trillion in stock wealth between July 2008 and March 2009, and another $3.4 trillion in real estate wealth during that same time.
We simply cannot afford to continue down the path policymakers have set over the last thirty years.
The test for this legislation is a simple one – whether or not it will prevent another financial crisis. And central to that test will be how this bill will address “too big to fail.”
This is a critical issue that has been growing for some time now as increased economic concentration in the financial services sector has put more and more financial assets under the control of fewer and fewer decision-makers.
Mr. President, years ago, a former Senator from Wisconsin, William Proxmire, noted that as banking assets become more concentrated, the banking system itself becomes less stable as there is greater potential for system-wide failures. Sadly, Senator Proxmire was absolutely right as recent events have proven.
Even beyond the issue of systemic stability, the trend toward further concentration of economic power and economic decision-making, especially in the financial sector, is not healthy for the Nation’s economy.
Banks have a very special role in our free market system; they are rationers of capital. When fewer and fewer banks are making more and more of the critical decisions about where capital is allocated, there is an increased risk that many worthy enterprises will not receive the capital needed to grow and flourish.
For years, a strength of the American banking system was the strong community and local nature of that system. Locally made decisions made by locally owned financial institutions – institutions whose economic prospects are tied to the financial health of the community they serve – played a critical role in the economic development of our Nation, and especially for our smaller communities and rural areas.
But we have moved away from that system. Directly as a result of policy changes made by Congress and regulators, banking assets are controlled by fewer and fewer institutions, and the diminishment of that locally owned and controlled capital has not benefited either businesses or consumers.
And of course most dramatically, taxpayers across the country must now realize that Senator Proxmire’s warning about the concentration of banking assets proved to be all too prescient when President Bush and Congress decided to bail out those mammoth financial institutions rather than allowing them to fail, a bailout I strongly opposed.
The trend toward increased concentration of capital was greatly accelerated in 1994 by the enactment of the Riegle-Neal Interstate Banking and Branching Act and especially in 1999 by the enactment of the Gramm-Leach-Bliley Act, which tore down the protective firewalls between commercial banking and Wall Street investment firms. Those firewalls had been established in the wake of the country’s last great financial crisis 80 years ago by the Banking Act of 1933, the famous reform measure also known as the Glass-Steagall Act.
Prior to Glass-Steagall, devastating financial panics had been a regular feature of our economy. But that changed with the enactment of that momentous legislation, which stabilized our banking system by implementing two key reforms. First, it established an insurance system for deposits, reassuring bank customers that their deposits were safe and thus forestalling bank runs. And second, it erected a firewall between securities underwriting and commercial banking. Financial firms had to choose which business to be in.
That firewall was a crucial part of establishing another protection, deposit insurance, because it prevented banks that accepted FDIC insured deposits from making speculative investment bets with that money.
The Gramm-Leach-Bliley Act tore down that firewall, as well as the firewall that separated insurance from Wall Street banks, and we have seen the disastrous results of that policy. I voted against tearing down the firewall that separated Main Street from the Wall Street banks, and I did it for the same reason I voted against the Wall Street bailout – because I listened to the people of Wisconsin, who didn’t want to give Wall Street more and more power. Wall Street was gambling with the money of hardworking families, and too many members of Congress voted to let them do it. Well, I didn’t support it before, and I won’t support it now. We’ve got to get this legislation right, and protect the people of Wisconsin, and every state, from something like this happening ever again.
I was pleased to join the Senator from Washington (Ms. Cantwell) and the Senator from Arizona (Mr. McCain) in introducing legislation to correct that enormous mistake Congress made in passing Gramm-Leach Bliley. And I look forward to supporting an amendment to this measure based on the Cantwell-McCain-Feingold bill.
The measure before us seeks to make up for the lack of a protective firewall between the speculative investment bets made by Wall Street firms and the safety net-backed activities of commercial banking by imposing greater regulatory oversight. But we have seen just how creative financial firms can be at eluding regulation when so much profit is at stake. No amount of regulatory oversight can take the place of the legal firewall established by Glass-Steagall. When it is offered, I urge my colleagues to support Senator Cantwell’s amendment to restore that sensible protection. Rebuilding the Glass-Steagall firewall is essential in preventing another financial crisis.
But even if we restore Glass-Steagall, there are additional steps we should take to address “too big to fail” in this bill. I am pleased to be joining the Senator from North Dakota (Mr. Dorgan) in offering his amendment to address the problem directly by requiring that no financial entity be permitted to become so large that its failure threatens the financial stability of the United States.
And I also look forward to supporting an amendment that will be offered by the Senator from Ohio (Mr. Brown) and the Senator from Delaware (Mr. Kaufman) that proposes bright line limits on the size of financial institutions.
The disposition of those three proposals will go a long way in determining my vote for the final version of this measure. I very much want this body to craft a bill that can prevent the kind of crisis we experienced in the future. But the bill before us needs some work before we can make that claim.
Russell Feingold is a United States Senator from Wisconsin.
