Attorney Mark Maddox wrote the below article for the IBJ that was published over the past weekend.
Do you remember 2008? That’s the year that we learned that the Big Banks engaged in massive bets with their depositors’ money on complicated derivatives that were ultimately backed by thousands of bogus mortgages that should never have been loaned in the first place.
Do you remember what resulted from Wall Street’s big bets going bust? Just a little economic disturbance that we now call the Great Recession of 2008 that caused massive job losses, huge market losses, business closures, and general unhappiness along Main Street that many still feel today.
Do you remember the federal government’s reaction to the Great Recession? It started with a $700 Billion bank bailout that became known as TARP. Since the banks had made crazy bets with depositors’ money on complex and risky derivatives called swaps, the entire banking system was at risk of failing. The federal government had no choice but to step in and shore up the collapsing system with our taxpayer money. Too big to fail was now a reality.
But Congress didn’t stop there. Many Americans believed that whatever caused the Great Recession should not be permitted to happen again. Most of the country seemed to agree that the reckless gambling on Wall Street with depositors’ money should never again be able to threaten the jobs and livelihoods on Main Street. So in 2010, Dodd-Frank was passed which contained a provision prohibiting banks from using depositors’ funds to speculate on these complex and speculative derivatives. It was still okay if the Banks wanted to use their own money to make these risky bets, but they simply couldn’t use their customers’ funds and put the entire banking system at risk yet again.
Fast forward to 2014, a mere four years after Dodd-Frank was passed and six years since Wall Street marched the world up to the precipice of financial Armageddon. The Dodd-Frank provision prohibiting commercial banks from using depositors’ funds to speculate on risky derivatives was removed as part of the recent Congressional budget bill. Shockingly, Wall Street is once again almost unrestrained to engage in the same sort of conduct that put us all at risk a mere six years ago.
This is unfortunately the way history repeats itself in the world of financial regulation. Inevitably, in order to maximize its profits, Wall Street engages in bad conduct that results in severe harm to the public good. Congress or the SEC cracks down on the bad conduct for a few years. Wall Street then aggressively lobbies the federal government to cause the tougher regulations to be pulled back. Then the whole ugly cycle repeats itself again and again.
I will never accept that one of the federal government’s main priorities is to help Citigroup or JP Morgan achieve greater profits. It should be protecting the interests of all of its citizens. It should be protecting the depositors of our commercial banks from reckless conduct by the banks’ top officers. It should be protecting the American taxpayers from having to bail out “too big to fail” banks from their own speculative bets. And it should have the gumption to criminally prosecute the “too big to jail” Wall Street criminals for their misconduct. Unfortunately, Wall Street has invested so much money in the federal government that it now owns both political parties, and can effectively write its own legislation as it did with the budget bill. We are all at the mercy of the Wall Street titans more so than ever before.