Financial "Reform" Bill a Treat to Washington, Wall Street Fat Cats

Press Release

Under the guise of financial regulatory reform, the House of Representatives today passed controversial legislation giving greater responsibility and power to the same Washington regulators that failed to heed the warning signs leading to the collapse of the markets. Making matters worse, the 2,300-page bill, H.R. 4173, is paid for with funds from the Troubled Asset Relief Program (TARP) that were intended to pay down the nation's $13 trillion debt.

"This legislation fails to address any of the underlying issues that led to the financial meltdown in the first place," said Congressman Tim Murphy (PA-18), who opposed the legislation. "It is clear that Washington regulators were unable to connect the dots indicating the country's financial system was in peril. Now, Congress is giving even more power to the very same institutions that missed the nation's impending economic doom.

Under the legislation, the Federal Reserve, which kept interest rates artificially low and created the housing bubble, will be empowered to allocate credit through the Consumer Financial Protection Bureau. Congressman Murphy voted for a measure to audit the Federal Reserve during debate, but the motion failed. In addition, H.R. 4173 gives a greater role to the Securities and Exchange Commission (SEC), which overlooked the crooked dealings of Bernie Madoff. And despite Fannie Mae and Freddie Mac being bailed out to the tune of $145 billion for their failings, H.R. 4173 offers no reforms to protect taxpayers from a future financial rescue.

In addition, the legislation creates two new government bureaucracies. A new Financial Stability Oversight Council will be established and given the power to arbitrarily decide which financial institutions pose too large of a risk to the economy, shut down such firms, and determine how creditors are paid without the recourse of bankruptcy proceedings. Having a Council in place establishes a moral hazard, creating the expectation that the government exists to bail out failed institutions. The Treasury, which in the past used its own discretion to determine which banks received bailout funding, will lead the Council. The bill also creates an Office of Financial Research that will have the authority to monitor and track individual transactions, from each person's ATM withdraws to purchases. There is no indication on how this information will be used.

"Small businesses are already struggling with less capital, fewer loans, and a lack of access to credit," said Congressman Murphy. "This legislation will only make it more difficult for small businesses to invest and hire workers. In fact, this bill is estimated to cost up to 120,000 jobs. The American people have already suffered enough because of greed and gambling on Wall Street without Washington making it worse."

Further evidence that H.R. 4173 rewards risky behavior is the fact that it is supported by none other than Goldman Sachs. Goldman Sach's CEO, Lloyd Blankfein, testifying before a Senate Committee, recently said, "I'm generally supportive…. The biggest beneficiary of reform is Wall Street itself."

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