Five reforms needed to prevent another financial meltdown

Five years ago, the nation's financial system unraveled due to recklessness on Wall Street and regulatory failure in Washington.

The fallout from the financial crisis cost millions of Americans their jobs, homes and life savings, and resulted in deep and lasting damage to our nation's economy. Yet, Wall Street bounced back quickly after receiving trillions of dollars in taxpayer assistance.

By 2010, the 10 biggest U.S. banks were earning more than $62 billion in annual profits and compensation at publicly traded Wall Street firms reached a record $135 billion. By 2011, the 10 largest banks controlled a whopping 77 percent of the nation's banking assets.

It's clear that little, if anything, has changed on Wall Street. The biggest banks and their leaders have paid no real legal, economic or political price for their wrongdoing, and the nation remains at risk from unrepentant and unreformed megabanks.

On this fifth anniversary, here are five critical actions that need to be taken to prevent another crisis and to ensure that our banking system serves our nation's best interests.

First, we need tough and resolute leaders in key financial regulatory positions in Washington.

The Financial Crisis Inquiry Commission cited the failure of the Federal Reserve under Alan Greenspan to stem the flow of toxic mortgages as a key cause of the crisis. Regulators must have the backing and backbone to stand up to the big banks and to reform them so they serve the core mission of lending to expand our economy.

Second, we must put an end to outsized Wall Street executive compensation packages that continue to encourage big risk taking —where the payoff on the upside for executives can be huge, with the downside for those executives almost nil. Big institutional investors — who manage the life savings of working Americans — need to demand an end to pay practices that reward the casino culture that brought down the house.

Third, big banks must be required to hold more capital. Fed Chairman Ben Bernanke told the inquiry commission that, in September and October 2008, 12 of the nation's 13 biggest banks were at risk of failure within a week or two.

Razor-thin capital cushions were a central factor in the meltdown. Yet, capital standards at systemically important banks remain dangerously low. Federal regulators are proposing to increase capital requirements for the biggest financial institutions, but Wall Street is gearing up to fight these sensible standards. The rules must be adopted without weakening and without delay.

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