You’re starting a new week, but ten years ago today a wild and crazy Wall Street-induced lost weekend didn’t end. A decade of unhinged Wall Street risk-taking unleashed on consumers, homebuyers and communities had come to a head. The weekend bankruptcy of Lehman Brothers, an investment bank, marked our 2008 financial collapse and began weeks of frenzied responses to further dire news. Financial regulators and political leaders went into crisis mode and lurched through a series of emergency decisions to stop our entire financial system from following Lehman into collapse. A few weeks later, efforts culminated in an extraordinary, controversial, taxpayer-fueled bailout of big banks and other firms.
Almost two years later, Congress finally enacted the Wall Street Reform and Consumer Protection Act. Known as Dodd-Frank, the law included as its building blocks numerous reforms designed to prevent reckless behavior with other people’s money, restore confidence in investment markets and build real consumer protections into regulation.
The aim had been to replicate the success of the reform efforts of the early 1930s. Following the 1929 Wall Street Crash, Congress, as part of the “New Deal,” established the Federal Deposit Insurance Corporation to restore depositor faith in the banking system. To make doubly sure, it also separated investment banks from deposit-taking banks with the Glass-Stegall wall. It passed the Securities and then the Securities Exchange Acts, establishing rules for issuing and trading (exchanging) stocks and other securities and created a financial cop, the Securities and Exchange Commission, to oversee the business.
The benefits of those reforms enacted after the worst financial crisis in history lasted over 50 years and made our financial system stable and the envy of the world. Then, over 20 years or so, a series of regulatory and Congressional decisions, along with regulatory malpractice, combined to fuel the 2008 economic collapse.
The Wall Street political machine never really went away. In 2010, it was forced to accept some changes, but it never had to like them. It has since worked tirelessly to convince Congress to do its bidding, despite that the public, on a trans-partisan basis, supports continued Wall Street protections. How does this work? Lobbying and political influence peddling and campaign donations by Wall Street and the financial industry are increasing. According to Americans for Financial Reform, in the 2017-2018 cycle, they’re spending over $1 million/member of Congress or about $2 million/day. If you say something loud enough or repeat it enough times, and amplify what you’re saying with big money, it’s easy to get Washington to ignore what the voters want. We’ve been trying for years to get big money out; it’s a staple of protectionist campaigns to keep markets rigged or allow practices that harm consumers or the environment by Big Oil, Big Coal, Big Pharma, Wall Street (and now, Big Tech, too).
What’s worse is that Wall Street and its remora-like hangers-on, including the predatory payday lenders, are relentlessly attacking the bedrock core of crucial reforms. For the first six years of its existence, the Dodd-Frank centerpiece known as the Consumer Financial Protection Bureau made consumers safer in a emerging, safer financial marketplace. It returned $12 billion directly to over 29 million injured consumers, including students, veterans and older Americans. It reined in price-gouging predatory lenders and sloppy credit bureaus and debt collectors. The CFPB achieved its design goals: make it to be tough enough to take on any wrongdoer, even a big, connected Wall Street bank, and give it a reach wide enough to cover the entire financial marketplace, so no wannabe wrongdoer could hide behind some other pliant regulator.
However, the new Congress and administration repealed CFPB’s final rule intended to stop the unfair use of arbitration in consumer financial contracts, so consumers can’t hold wrongdoers accountable. Its acting director has also paused enforcement of its final rule to regulate high-cost payday lending, while he simultaneously supports industry efforts to overturn it in the courts. (Even Congressional leadership didn’t think the public would stand for a straight-out repeal at the behest of payday lenders.) He has also threatened to take its successful public consumer complaint database, holding around one million complaints, offline to consumers. He has restructured the agency to weaken its important offices on fair lending, student loans and military families. The president has nominated an unqualified bureaucrat who supports cutting the bureau’s budget and eliminating its independence to a 5-year seat as director.
Meanwhile, Congress has chipped away at investor protections in Dodd-Frank. It has also repealed a Labor Department fiduciary rule meant to ensure the safety of retirement savings. A much weaker, so-called “best-interest” proposal from the SEC has “some fans,” but they all work at the Securities Industry and Financial Markets Association. A recent major law trumpeted as bi-partisan and “measured” took an unwise axe to Dodd-Frank rules and longstanding Federal Reserve authority to regulate risky activities. Wall Street backers in Congress are now asking the Federal Reserve to do more to do less, by further reducing its requirements on big banks.
Meanwhile, not much is said today by Congressional leadership, the current administration (heavily Wall Streeters) or the president about the millions of Americans who lost their homes and/or jobs, and/or trillions in retirement savings.
As the Financial Crisis Inquiry Commission said:
“The Commission concluded that this crisis was avoidable. It found widespread failures in financial regulation; dramatic breakdowns in corporate governance; excessive borrowing and risk-taking by households and Wall Street; policy makers who were ill prepared for the crisis; and systemic breaches in accountability and ethics at all levels. […] The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again.”
Today, the lessons of the financial crisis haven’t been forgotten. Everyone can remember what happened ten years ago and its follow-on Great Recession. Its hollow recovery still holds back many consumers and communities.
No the lessons aren’t forgotten, they’re being ignored and the reforms intended to prevent a massive Wall Street fueled economic disaster from happening again are being repealed. What’s wrong with that picture? We need to defend Dodd-Frank and the Consumer Bureau, not tear them down.
Senior Director, Federal Consumer Program, PIRG
Ed oversees U.S. PIRG’s federal consumer program, helping to lead national efforts to improve consumer credit reporting laws, identity theft protections, product safety regulations and more. Ed is co-founder and continuing leader of the coalition, Americans For Financial Reform, which fought for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including as its centerpiece the Consumer Financial Protection Bureau. He was awarded the Consumer Federation of America's Esther Peterson Consumer Service Award in 2006, Privacy International's Brandeis Award in 2003, and numerous annual "Top Lobbyist" awards from The Hill and other outlets. Ed lives in Virginia, and on weekends he enjoys biking with friends on the many local bicycle trails.