Financial Recovery and Regulatory Reform
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Mica on Financial Recovery and Regulatory Reform Having come from the private sector I hold some very strong opinions relating to this matter. It is my firm belief that Federal government should not implement policies that reward irresponsible financial practices. Financial institutions, backed by the Federal Government, should not engage in speculative ventures or investments. This type of activity was not allowed under the Glass-Steagall Act. In fact, in 1999, I was one of only a handful of Republican Members of Congress to oppose the repeal of the Glass-Steagall Act. My opposition to repealing Glass-Steagall was based on avoiding the foundation of the financial crisis we find ourselves in today. Regrettably, the current financial reform legislation still does not fully address the problem of having government backed financial institutions dealing in speculative investments. The legislation negotiated by House and Senate Democrats broadens the Federal Reserve’s regulatory powers, even after it previously failed to take action that would have averted this financial crisis. A healthy small banking industry is the cornerstone to the well-being of small businesses and economic recovery. Small banks and community lending institutions are a lifeline and vital resource to small businesses. When considering systemic risk, our community banks should not be forced to bear the burden of subsidizing Wall Street’s risk-based or speculative practices. Compliant financial institutions should not bear the costs of insuring or guaranteeing risk-based activities, speculative investment guarantees, or insurances of funds setup to bailout failing financial organizations. Unfortunately, small and community banks will be penalized under this new bill. Those who engage in any selling or dealing in any risk-based financial transaction, whether it is securities or investments, must be required to be transparent and their ventures should not be backed by government guarantees. So far Congress is still missing the mark on the problems that nearly brought down our financial system. The final financial reform measure does not do enough to address the risky ventures of banks “too big to fail” and still leaves taxpayers on the hook for irresponsible banking practices. Of even greater concern is the fact that smaller financial institutions who were not the originator of the financial problems will be penalized with even more harsh regulation. In light of the Federal Reserve’s recent inability to identify and address the systemic risk that led to the current financial crisis, the solution being proposed, which conveys even more power, still does not mean they will act prudently in the future. Giving regulators more power sounds impressive, but in fact many former and current regulators have not used the tools they already possess. Even more disappointing, government backed institutions like Fannie Mae and Freddie Mac who helped originate the subprime mortgage market remain untouched in the new financial reform bill. It is my belief that they were a root cause of the financial collapse. Some of their problems began when former HUD Secretary, Andrew Cuomo, reduced their required cash reserves from 10 percent to 2.5 percent during the Clinton Administration. Current U.S. Treasury Secretary, Tim Geithner, and Director of the White House's National Economic Council, Larry Summers, had authority in their former positions to take action but failed to exercise proper judgment to avoid the financial meltdown. Additionally, there were Members of Congress in key positions who secured special mortgage deals from the very financial institutions who were pumping out subprime mortgages. The market collapsed because of poor judgment and actions by those in powerful positions who could and should have been responsible. There is also cause for concern when it comes to the proposed derivative regulation. The new regulation requires routine derivatives to be traded on exchanges and routed through clearinghouses. This does not remove risk, but rather sets up yet another entity to become “too big to fail.” A more responsible approach would be to diversify the risk instead of housing all the risk in one place. While the financial reform legislation is well intended, it has also missed the mark on properly directing regulatory authority. The creation of a Consumer Financial Protection Bureau could dramatically limit credit availability to some consumers who will now find it difficult to obtain small, but necessary short term loans. Consumers that are economically strapped and need multiple options for credit just to get by may find it very difficult to survive. A one-time audit of the Fed’s emergency lending program is a start, however this too misses the mark and could have been better crafted. The proposed minimum requirements for underwriting standards for home mortgages is well intended, but does not do enough to reduce risk or predatory lending. While there are several improvements relating to credit and debit card practices, they were tacked onto legislation whose purpose was to address the financial meltdown. It had been my sincere hope that this legislative reform would specifically address the problems that led to the financial market collapse and that such legislation would be offered. However, that all changed with the Majority’s writing of this important legislation. Unfortunately, after carefully reviewing provisions of the current proposal, I am disappointed that the final measure dramatically fails to adopt adequate protections for our nation’s future financial system, for the American taxpayer or for the consumer. ____________________________________________ Mica's Objections to the Dodd-Frank Financial Reform Bill
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