Trumka: Bank Bailout Language in Proposed House Financial Services Committee Bill Doesn’t Work

by Seth Michaels, Oct 29, 2009

Today, AFL-CIO President Richard Trumka is delivering a message to Congress: The United States needs financial reform that works, and key elements of the proposed legislation covering bank bailouts fall far short of that standard.

In testimony today before the House Financial Services Committee, Trumka said while parts of the proposed bill on financial reform bring necessary changes, the elements dealing with the “shadow financial sector”—derivatives, hedges funds, private equity and bailout funds—are going in the wrong direction. As proposed, they could put even more power into the hands of unaccountable bankers without fixing the financial sector failures that led to our current crisis.

The House committee made a big step forward earlier this month when it passed a bill creating a Consumer Financial Protection Agency to watchdog consumer interests. Now, we are working closely with leaders in Congress to ensure the final bill on financial reform will bring needed changes to banking and investment—and to make sure that members of Congress pay attention to workers and consumers, not just Wall Street.

When it comes to the shadow financial sector, Trumka said, we need reform that benefits working families:

Our members were not invited to Wall Street’s party but we have paid for it with devastated pension funds, lost jobs, and public bailouts of private-sector losses. Our goal is a financial system that is transparent, accountable and stable—that is the servant of the real economy rather than its master.

Trumka said the elements of the legislation the Financial Services Committee is considering would allow the practices that undermined our economy over the past decade to continue—and might even undermine our chance for real reform that protects consumers. The proposal being considered by the committee, Trumka said,

gives dramatic new powers to the Federal Reserve without reforming its governance so that the banks themselves are removed from the governance of the Federal Reserve System. Even more alarmingly [it] would appear to give power to the Federal Reserve to pre-empt a wide range of rules regulating the capital markets—power which could be used to gut investor and consumer protections.  

This legislation would create a financial system with too much power in the hands of bankers, Trumka said. The authority to oversee the financial industry must be given to a public, accountable and transparent body, not to a closed circle of financial executives acting only in their own behalf. Real reform will not let the banks choose their own regulators—allowing the practices that led to multibillion-dollar taxpayer bailouts to continue. The proposal being considered by the committee doesn’t do the job when it comes to disclosure, capital requirements and public oversight. The proposal

for identifying and regulating systemically significant institutions, and for resolving failing institutions, is secretive and optional. In other words, the Federal Reserve could choose to take no steps to strengthen the safety and soundness regulation of systemically significant institutions….[It] appears to take the most problematic and unpopular aspects of the TARP and make them the model for permanent legislation.

Trumka laid our four principles that must underlie financial reform so that the financial sector supports, rather than undermines, the real economy:

• Create a new Consumer Financial Protection Agency to monitor banks and credit card companies and prevent abuses.
• Reform the Federal Reserve Board or create an agency capable of stopping systemic risk.
• Re-regulate the shadow financial markets—derivatives, hedge funds and private equity.
• Address the housing crisis.

There’s a real danger that in this financial crisis, working families will see us back on the same old cycle, with government doing more to help big banks who caused the crisis than the families and communities who are the victims of the broken economy. We cannot build a strong, fair and sustainable economy by putting more power in the hands of bankers.

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