It is hard to imagine the disconnect among some in Washington and on Wall Street. Last Friday, House Republicans voted in lockstep against a package of reforms designed to prevent another financial crisis and protect consumers from predatory lending. The nation's financial firms, saved from themselves by billions in taxpayer largesse, are back to business as usual, doling out annual bonuses worth more than most Americans make in a lifetime.
But on Main Street, average Americans are angry, still coping with the double-digit unemployment and record home foreclosures brought on, in part, by the financial system's follies.
President Barack Obama pledged Sunday that he "did not run for office to be helping out a bunch of, you know, fat cat bankers on Wall Street." But it will take all his savvy and the strength of the congressional Democratic majority to right this situation. The financial industry has forked over $344 million this year to lobby Congress to prevent the passage of tougher rules that would potentially cost them profits, apparently to some effect. The bill passed the House on Friday, 223-202 without a single Republican vote.
The House measure adopts a number of essential reforms. It would create a new federal agency to police credit cards, mortgages and other financial products, ensuring that consumers aren't taken advantage of or misled by too-good-to-be-true come-ons. It would set up a system to dissolve large and complex financial companies that pose a danger to market stability — no more "too big to fail."
On executive compensation, the bill would give shareholders the right to a nonbinding vote on pay packages — inviting more direct corporate governance by owners — and would allow federal regulators to ban compensation practices built on incentives that lead to undue risk-taking.
The bill would tighten regulation of derivatives, including things like credit default swaps that were so much a part of the financial meltdown in 2008. Here, though, the House measure doesn't go far enough. Many, but not all, derivative products would be traded through clearinghouses, making them more transparent and subject to federal regulation. But other derivatives could still be traded privately — a loophole that could swallow the rule over time.
Another disappointment was the failure of an amendment to allow bankruptcy judges to modify primary residential mortgages. Giving federal judges this power, like they have with any other kind of loan, would encourage more voluntary mortgage modifications by banks.
The Senate is unlikely to take up its financial reform measure until next year, but there is not unlimited time to get this accomplished. Shamefully, Republican leaders would like nothing better than to see reform defeated. The longer Democrats in Congress wait, the harder it will be to push back against Republicans and their bank lobbyist partners.