Revenge can be a dangerous thing. Perhaps lawmakers should consider that as they attempt to overhaul our country’s financial regulatory system.
Financial services are among country’s most important industries, and the details of any reform legislation would affect us all -- including here, in New York City, its epicenter.
In fact, it was less than two years ago that headlines centered on the collapse on Wall Street. Seemingly invincible financial institutions were closing their doors, leaving thousands of employees on the streets. Of course, Wall Street’s collapse also affected many of our own, as a number of local trade and service jobs rely on a healthy and vibrant bank industry.
The meltdown dragged down global markets and left more questions than answers. How could this happen in our highly sophisticated financial services industry?
It was in this frenzied environment, amid mounting public pressure to act quickly, that the federal government interceded. Regretfully, the federal response served as another painful reminder on the perils of government interventionism.
In response to the crisis, the federal government proposed writing a massive check to bail out a number of financial institutions. Soon enough, the term “too big to fail” was used to justify rescuing large corporations, since their collapse would supposedly devastate our economy even further. Predictably, sinking corporations sought the helping hand of the government to ride out the choppy waters of the financial market.
Worse yet, it soon became clear that these same corporations seeking a helping hand had often exercised poor judgment and made unwise investments.
And in case you have forgotten, it’s our tax money that fills the coffers of the federal government. Thus, whether you know it or not, your tax money helped rescue Wall Street. More importantly, it will be our tax money that will be used for any future federal government rescue packages.
This is particularly important to keep in mind as Congress considers Sen. Christopher Dodd’s 1,334-page bill to overhaul the financial regulatory system. Beyond the perception that the White House and this Congress might be seizing on the plank of populism for political gains heading into the congressional elections in the fall, the bill is seriously flawed.
Among the bill’s weaknesses is a provision to establish a $50 billion fund to be used in emergencies to close or restructure financial institutions. This may sound like a good idea. But should we believe that $50 billion would be enough to stave off the next financial crisis? Or that politicians would avoid using this fund to bail out politically significant financial institutions? If history is any guide, the fund will be too small and too political to do much good..
The bottom line is that details matter, particularly when we are dealing with reforming such an important industry.
Two things must stand out: The first is to resist depicting Wall Street as nothing but a bunch of bad guys. We must keep in mind that a vibrant Wall Street is good for our country (and our city), and any proposed regulatory changes shouldn’t stifle competition and innovation.
Secondly, Congress must resist acting hastily to approve reforms that appear to side with “Main Street” over Wall Street for political gains.
We must keep in mind that bankers guilty of criminal behavior are being prosecuted, while those who were incompetent lost their jobs.
We were all upset by corporate malfeasance and government bailouts. But that’s precisely why we must demand from our lawmakers a responsible course moving forward. We need to prevent repeating past mistakes.
Israel Ortega is a Senior Media Services Associate at The Heritage Foundation
First appeared in Diario de La Prensa