Two years ago today, Bear Stearns – a fixture of the American financial system for 75 years – was collapsing.
Six months later to the day – September 15, 2008 – Lehman Brothers filed for bankruptcy.
Today, it is tempting to see those shocking failures as the beginning of the crisis that has claimed millions of jobs, billions of dollars in retirement security, and trillions of dollars in American wealth.
But the truth is that those historic collapses weren’t the beginning at all.
The crisis that has led to so much economic carnage in the lives of middle class Americans was caused by the long-standing failure of our regulatory structure to adapt to our changing financial system and prevent the sort of dangerous risk-taking that led us here.
The economic damage that resulted from those failures tears at the very fiber of our middle class.
While some of the most prominent American financial institutions have been destroyed or badly weakened, the far worse damage has been done to millions of American families who did nothing wrong.
A staggering 8.4 million jobs have been lost, and the unemployment rate remains near double digits.
Nearly 7 million have lost their homes to foreclosures. Millions more have lost their retirement funds, or their small businesses.
Americans are frustrated and angry; I hear it every time I’m in my home state of Connecticut.
They have lost faith in our markets, and they wonder if anyone is looking out for them.
Worst of all, as I stand before you today, our regulatory structure, constructed in a piecemeal fashion over many decades, remains hopelessly inadequate.
There hasn’t been financial reform on the scale I am proposing since the 1930s.
Let me be clear. We are still vulnerable to another crisis – and neither I nor anyone else can tell you with any degree of certainty that the American economy could survive another crisis of this magnitude.
It is time to act.
Some have suggested that we should wait a little longer to take up financial reform.
To them I say, how much longer do you want to leave our economy and our middle class vulnerable?
How many more jobs lost, homes foreclosed, retirement savings diminished?
Three years ago this week, the Banking Committee had just finished its first set of hearings on the wave of home foreclosures.
Since then, we have held dozens of hearings and spent thousands of hours working on legislation.
We have listened to hundreds of perspectives from experts in a wide variety of fields.
We have examined and re-examined proposals sent to us by the administration and many others.
We have worked in a bipartisan fashion to reach as much consensus as possible, and the bill I present today reflects the input and ideas of Senators Shelby and Corker, as well as many other members of the Committee, Republicans and Democrats alike.
And so, I want to thank my colleagues on the Banking Committee – Democrats and Republicans alike – for their hard work.
But our work must move forward.
The legislation I am offering today is comprehensive in its scope because the crisis it aims to solve is comprehensive in its scope, as well – not to mention tragic in its consequences.
We must restore confidence and optimism to our economy, accountability to our markets, and stability to our middle class.
The point of this reform bill is not to punish the financial services industry.
I know how angry people are at the mismanagement that led to this crisis. But legislating anger isn’t the way to solve the problem.
This legislation has three main goals.
First, we must plug the gaps and eliminate the inefficiencies that allowed this last crisis to happen – and still exist today.
Second, in addition to looking in the rear view mirror, we must look through the windshield.
There will be shocks to our system in the future – and we need an early warning system so that, next time, our system is prepared to deal with them.
Third, we must protect American consumers and honest businesses, so that we can:
- restore optimism in our economy and confidence in our institutions,
- renew the flow of credit and capital,
- reestablish America as the world leader in financial services,
- and rebuild a strong foundation to create jobs and prosperity for American families.
The bill I present today has eleven titles, many of which reflect bipartisan consensus.
Let me briefly discuss the four major reforms.
First: This legislation will end "too big to fail" bailouts.
Never again should taxpayers be asked to write a check because of an implicit guarantee that the federal government will bail out a company when its collapse would threaten the stability of the economy as a whole.
Companies simply shouldn’t be that big or that complex – it isn’t safe.
And we will discourage that through new capital requirements and other strong supervisory protections.
Meanwhile, when large, complex companies do fail, they will be shut down – through bankruptcy or resolution – in a way that doesn’t threaten the rest of the economy.
Senators Warner and Corker have been invaluable in shaping this part of the bill, and I commend them both for their incredible work.
Second: This legislation will create a strong and independent consumer protection watchdog.
This crisis started when people were given mortgages they didn’t understand and could never afford.
If there was a watchdog on duty, it didn’t bark.
We need to strengthen not only its bark, but its bite.
I know there has been a lot of attention paid to which building this new watchdog will be housed in.
That’s not the important part.
The important part is that the consumer protection watchdog has the independence and authority it needs to get the job done.
The watchdog in this bill will have an independent head, appointed by the President and confirmed by the Senate.
Its budget will be independent, to ensure that it can’t be smothered by a refusal to provide it with resources.
It will have the autonomy to craft rules and the ability to enforce them.
It will be there to protect consumers from the abuses we’ve seen become almost standard operating procedure: skyrocketing credit card interest rates, the explosion in checking account fees, predatory lending by mortgage firms, and more.
Third: This legislation will create an early warning system so that someone is tasked with looking out for the next crisis.
We will create a systemic risk council with the job of scanning the economic radar to identify unsafe products or practices that could threaten our economic stability – and the authority to stop them.
We were caught off guard by the subprime lending crisis. We cannot let that happen ever again.
Fourth: This legislation will bring transparency and accountability to exotic instruments like hedge funds and derivatives that have for too long lurked in the shadows.
These activities left investors open to tremendous risks they didn’t even know existed.
Billions of dollars were traded – or perhaps a better word is gambled – behind closed doors. That must stop.
Now, the discussion draft we introduced in November contains very strong measures to bring transparency and accountability to these sectors of our financial system.
And the legislation I present today includes similar strong language.
Senators Jack Reed and Judd Gregg are continuing their work on this section of the bill; as they reach consensus, it will be incorporated into the final legislation.
Meanwhile, we will rein in the insane compensation packages that have outraged the public and hurt our financial system by rewarding short term profiteering and wild risk taking.
I want to commend Senator Schumer for his terrific efforts in crafting these reforms.
There’s more in the bill.
For instance, it creates a new program at the SEC to encourage whistleblowers.
The bill imposes more accountability on credit rating agencies.
The bill cracks down on conflicts of interest at the Federal Reserve, making the head of the New York Fed a position appointed by the President – and not hand-picked by the very bankers the New York Fed is responsible for regulating.
Our goal is to end business as usual and create a system where honest businesses, large and small, can thrive on a level playing field – where middle class families can find work and invest with confidence.
The legislation I present today contains bipartisan ideas and is the result of a bipartisan effort. It does not, as of yet, enjoy bipartisan support.
But we do need to act.
Every day we delay is a day we are unprepared for what’s around the corner, a day when Americans who have lost so much continue to lose confidence in our system, a day when we are refusing to confront these very real threats to our economic way of life.
And so, while I will continue to work with my colleagues to build support and make the case for reform, I am moving forward today.
The stakes are too high – and the American people have suffered too greatly – for us to fail in this effort.
This legislation will not stop the next crisis from coming. No legislation can.
But by creating a 21st-century regulatory structure for our 21st-century economy, we can equip coming generations with the tools to deal with that crisis and avoid the kind of suffering we’ve seen in this country over the past two years.
So let me conclude on this note: We will have reform this year