Prevent Future Financial Crises: Protect Consumers, Re-regulate the Banks
Edith Rasell, Minister for Economic Justice
"Can I tolerate wicked scales and a bag of dishonest weights?" – Micah 6: 11
The prophet Micah cried out the words he heard from God condemning the dishonest business practices of his day. Faithful people have long been decrying fraudulent and unethical business practices. We must continue to do so today.
Historically banking was a staid, low-risk, somewhat boring industry. That was before it became hot, glamorous, and extremely profitable. Salaries and bonuses skyrocketed. Then in late 2007 the high flyers fell, bringing the world economy down with them. Jobs disappeared, incomes fell, and foreclosures mounted as savings and retirement security evaporated.
It is now clear that the banks’ enormous profits stemmed from very high-risk activities which were unleashed by deregulation and under-regulation. Age-old problems of usury, fraud, racist lending, and extraordinary greed went unchecked. As new financial institutions and practices developed, regulation (and regulators) failed to keep up.
Trillions of dollars cycled through the financial institutions. Some of the money paid for new homes which today may be vacant or worth less than the value of the outstanding mortgage. But overall, there was little investment in new businesses, infrastructure, research and development, or other things with lasting value. Instead much of the money was used for speculation.
The frenzy of financial speculation and fraud has left behind enormous pain and stunted lives. Our children and young people may be the most severely impacted. Unemployed parents are stressed, depressed, and afraid. Children’s opportunities are constrained by fallen incomes. Young adults, who are bearing half of the net job losses, cannot find employment. Research shows their career paths and earnings will likely never recover from the harm of entering the job market during such a downturn. Neighborhoods – especially those of the working class and people of color – have been devastated by foreclosures and a growing number of vacant homes.
To address the risky, fraudulent and usurious dealing that led to our current financial crisis, Congress is considering a package of reforms that, together, can help restore integrity to our financial markets. This package:
• Establishes an independent consumer financial protection agency to protect people from fraudulent, misleading, and abusive practices in mortgages, credit cards, payday loans, bank fees, and other lending.
• Regulates high-risk financial instruments like derivatives and require they be traded in exchanges where there is oversight and transparency.
• Establishes an orderly process to dissolve a failing bank, funded in advance by the large banks, in order to avoid future tax-payer bailouts.
• Prohibits banks from using depositors’ money to make speculative investments for the bank’s own benefit (or loss).
• Enacts greater regulation and oversight of all elements of the banking industry including commercial and investment banks and bank holding companies, rating agencies, hedge funds, private equity firms, brokers, and mortgage companies.
• Empowers banks’ shareholders to exert greater influence on institutional practices and policies including executive compensation.
The banking frenzy that brought pain and destruction to millions of people in the U.S. and billions around the world did not have to happen. It must not happen again. People of faith are called to act, to work to end the deceptive, risky, and fraudulent practices that caused the financial crisis.
For more information:
On the economic crisis from Justice and Witness Ministries
On banks and regulation
• Center for Responsible Lending
• Faith and Credit
• Americans for Financial Reform
• U.S. PIRG Guide to Wall Street Reform