As President Barack Obama pushes for stricter regulations on Wall Street institutions, I want to call us back to caution.
Undoubtedly, we should learn from past mistakes and forge a path through to prosperity and an understanding of proper limits on the dangers associated with potentially catastrophic lending and investment practices. But without appropriate caution, we will jump the gun with an over-expanded and unjustifiably influential federal government in the financial sector.
It is imperative that we look at our past to truly understand how we got here. And we need not look further than the Carter administration’s Community Reinvestment Act of 1977 for the answer. That act required banks to lend to uncreditworthy borrowers, mostly in underprivileged and minority communities.
This type of enabling legislation, coupled with predatory lenders and institutions, including those under federal government control, who would push potential investors into home-buying and other schemes for which they were not fiscally viable, formed an all-too-powerful formula that led to an almost paralyzing economic bust.
Democrats have looked at this scenario as a political opportunity in the run-up to the midterm elections. Without acknowledging the complexity or history of the issue, they hope to score points with a hit on Wall Street and the promise of reform. But insensible reform is nothing but reckless.
Last week, all 41 Republican senators, under the leadership of Mitch McConnell, signed a letter stating their opposition to the current version of the “Wall Street reform bill.” If needed, this type of unity could stop the bill. There are several key provisions Republicans must fight:
First, the suggested creation of a new “Consumer Protection Agency” to tighten government oversight is a blatantly unnecessary power grab. Its proposed duties could be easily handled through existing agencies.
Second, Democrats are pushing for the creation of a $50 billion fund which could be used by the government to seize and dismantle large, failing financial agencies. This proposal only endorses “too big to fail” and institutionalizes the misguided bailouts of the past two years.
More than ever, we need smart and realistic leadership, not another Washington power grab.