Financial Services

Anyone who’s picked up a newspaper or turned on the news in the past two years knows that the financial markets are in turmoil.  While, in hindsight, there were many contributing factors to the near-collapse of our financial system in late 2008, the underlying cause of the financial crisis was unchecked, unregulated greed. 

 Fortunately, the Democratic Congress is doing something about it.

The House Financial Services Committee will soon consider comprehensive legislation to reform the regulatory framework of the financial services industry.  Under this new plan, the types of exotic, unregulated products that played a key role in the downturn of the financial markets would be adequately regulated to ensure that the events of 2007 and 2008 are not permitted to repeat themselves.  With this regulatory reform package in place, products like credit-default swaps (one of the financial products that led to the market collapse) and other derivatives would be subject to government oversight and the companies involved in trading them would be subject to rules designed to ensure that, in the event a credit-default swap – or any other product – fails, the institution left holding the product is sufficiently capitalized to pay the debt.

Equally as important is the Committee’s work with the credit-rating agencies, with which I have been particularly involved.  Without question, the overly-favorable ratings that credit-rating agencies assigned to mortgage-backed securities lured many investors, including public pension funds, to purchase these assets which, of course, were anything but triple-A.  As we now know, the biggest credit-rating agencies were double-dipping: first collecting a fee from the issuers of securities for advising them how to package their securities, and then collecting another fee to rate the package that they had advised the issuers to put together.  The legislation before the Financial Services Committee will both put a stop to the ability of credit-rating agencies to double-dip and ensure that the financial markets consider credit ratings as only one aspect of due diligence and not gospel. 

But, ultimately, our financial system must equitably recognize the end user – the consumer.  I was pleased that President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act into law this May.  The CARD Act ended unfair credit-card practices like anytime, any reason interest rate increases and guaranteed credit-card customers at least 21 days in which to pay their bill.  I was also pleased that the bill included an amendment that I offered in Financial Services Committee to end so-called “pay to pay” fees, in which credit-card companies charge their customers a fee to pay their bills online or by phone.

Of course, credit cards are not the only aspect of the financial system that require consumer advocacy.  Since December 2008, the victims of Bernard Madoff’s fraud, many of whom lost everything they had, have been trying to receive the government-authorized insurance coverage to which they are entitled.  Unfortunately, the process of issuing insurance payments to Madoff victims has been shamefully slow.  At a time when many Madoff victims are facing foreclosure, it is incomprehensible that the Securities Investor Protection Corporation (SIPC) is not adequately processing victims’ claims.  I have repeatedly raised this issue with Securities and Exchange Commission Chairman Mary Schapiro, and will continue to press SIPC to process as many Madoff claims as quickly as possible.

I have also sponsored legislation, H.R. 1389, the Fraudulent Tax Relief Act, that would provide Madoff victims with a one-time, refundable tax credit for the income taxes they paid on their reinvested Madoff income since 1995.  Madoff’s victims collectively paid hundreds of millions of dollars in federal and state taxes.  Yet the Federal government did not use these or any other tax receipts to discover any deceitful or fraudulent activity in the Madoff empire in time to mitigate potential losses or to protect investors.  In fact, the government stands to become the final beneficiary of ill-gotten gains, having failed to protect the American public from Mr. Madoff’s scheme while simultaneously taxing the phantom profits on unreal investments by people and charities, many of whose life savings, lives, and dreams are in ruins.  H.R. 1389 would correct this inequity and provide Madoff victims with refunds for the taxes they paid income they never received and that, in fact, never existed.

We are at a pivotal time for our financial markets and for our economy.  I will continue to advocate for common-sense measures that provide consumers with adequate protection from predatory fees or practices, as well as legislation that ensures that government regulators are not once again caught asleep at the switch during a financial crisis.