By Leonard Boswell
Iowans are known for our careful and prudent approach to finances, which is why we have been able to escape much of the worst impacts of the financial crisis of 2008. But the recent shocking collapse of Peregrine Financial Group in Cedar Falls hits close to home as to why we must protect farmers and consumers from the unprincipled tactics of financial firms that defraud innocent consumers.
It makes urgent the need to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act, the landmark legislation passed by President Obama in the aftermath of the economic crisis.
The downfall of Russell Wasendorf and Peregrine is tragic for the citizens of Cedar Falls who benefited from his philanthropy and dedication to the community. For thousands of Iowa consumers, grain elevators, and farmers who rely on hedging contracts to manage risk in volatile agriculture markets, Peregrine's collapse will cause untold hardship, with the possibility that many will never recover their investments.
Four years after the crisis on Wall Street brought our economy to a near depression, we still see the shocking news of criminal misconduct by numerous financial institutions.
JPMorganChase, the "gold standard" in banking, has suffered a staggering $5.8 billion in trading losses due to bad bets on derivatives. Barclays, a British bank, has agreed to pay $450 million for manipulating the London Interbank Offered Rate, or Libor, a key global interest rate benchmark that impacts trillions in U.S. mortgages, credit cards and student loan rates. And now, barely nine months after the $1.6 billion implosion of MF Global, we have a financial mess that is hitting all too close for Iowans.
What is abundantly clear is that Wall Street still has not cleaned up its act and instead spends over $100 million lobbying Congress. Since the summer of 2010 when we overhauled the policing of Wall Street, Republicans in Congress and Mitt Romney have supported repealing Dodd-Frank's rules that require more transparency and oversight of financial markets. Republicans have also sought to block enforcement by severely underfunding the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission and the new Consumer Financial Protection Bureau.
As ranking member of the agriculture subcommittee overseeing this matter on behalf of producers, I have worked to bring clarity to the discussion. Unfortunately, attempts I have made with fellow colleagues to increase funding for the CFTC have been blocked by partisan divide. Republicans have not only rejected efforts to increase funding for market oversight, they have opposed my bill to allow the CFTC to pay for itself the same way the SEC pays for itself, because they see it as a tax on stock brokers and Wall Street traders.
The CFTC must now sort through the wreckage of Peregrine's bankruptcy to determine how the company deceived its customers and regulators for over 20 years. Under Dodd-Frank, the CFTC's duty is expanded to not only protect consumers' and farmers' investments from being used for improper speculation, but now they must also oversee the vast $800 trillion derivatives market.
Instead of arming the CFTC, the "Ryan-Romney budget" slashes CFTC by $25 million from last year at $128 million below the president's request. Sadly, on June 6, the Republican-led House Appropriations Committee voted to send a bill to the floor that barely funds the CFTC. At 41 percent below the president's request, this funding level says that the majority party in the House of Representatives does not think Wall Street requires regulation from market gamblers, such as Peregrine and MF Global.
The great recession was created by Wall Street's risky deals and trades that exploited Americans. Recklessness on Wall Street nearly wrecked our economy and did tremendous damage to middle class families.
To bring long-term stability to our financial system and to Iowa's producers, we must ensure that integrity is rewarded and that everyone plays by the same rules. President Obama knows that the free market only works when the middle class gets a fair shot. He has insisted that banks and financial institutions that defrauded their customers are held accountable and act responsibly.
Mitt Romney has distressingly said he'd rather return to the days when Wall Street wrote its own rules.
Iowans have learned a lesson about the perils of that vision.