On a mission to rein in a Wall Street that’s become a casino is U.S. Sen. Bernie Sanders of Vermont, who has promised to go to bat to improve the financial industry reform legislation that was announced last week.
The legislation, captained by Senate Banking Committee chairman Chris Dodd of Connecticut, would create a new Consumer Finance Protection Agency under the aegis of the Federal Reserve, and would broaden the authority of the Fed by authorizing it to examine banks with $50 billion or more in assets, not just those with $100 billion. And it would establish a new “systemic risk council,” also under the wing of the Fed, that would include an overseer for the insurance industry.
Sanders says that’s not enough. His program includes specific rules, not just new structures. One is a cap on credit card interest; Sanders would limit interest on the plastic to 15 percent, not the 35 percent some banks charge now.
The Senate bill also stops short of breaking up financial institutions considered too big to fail. It would only let regulators intervene if the firms showed signs of trouble. Sanders has already proposed a measure ordering the Treasury to downsize institutions, even if they are healthy, whose magnitude would put the economy at risk if they were to show signs of failing (see Imperium Watch, “The Force of Few Words,” Nov. 26, 2009).
Furthermore, says Sanders, there’s no way that the Fed, which notoriously failed in its own earlier role as protector of the consumers of financial products, can be a proper home for the new Consumer Finance Protection Agency. The CFPA should be independent, he insists.
And according to Sanders, the proposed legislation doesn’t go far enough in dealing with credit default swaps—in essence, bets that certain classes of transactions will fail, which necessitated huge payouts to prescient investors who made megafortunes off the market crash. Credit default swaps, which were regulated before passage of the Commodity Futures Modernization Act of 2000 (a law that also legitimized the energy derivatives that helped bring down Enron), should be monitored if not banned, and so should other risky financial instruments Sanders calls “financial weapons of mass destruction.”
“We have got to make it crystal clear to Wall Street that the era of wild speculation and greed is over,” Sanders said in a statement. “We need a Wall Street which invests in the job of creating a productive economy, and not one that continues the unregulated gambling activities which have been so devastating to the middle class of our country.”
