Point : Financial Reform [Part 2]

The Securities and Exchange Commission sued Wall Street giant Goldman Sachs on fraud charges, this past week. Though many consider the timing of this lawsuit suspicious, it provides a powerful backdrop for the debate about financial reform that is about to take place in the Senate.

Before discussing the actual bill, a fundamental question needs to be addressed: Does the financial industry really need regulation?

There was a point during the financial crisis where it was a legitimate possibility that America would enter a deep depression — that the financial industry, composing 8 percent of our gross domestic product, would fail. Let me repeat myself: There was a very real chance that nearly a tenth of our GDP would collapse overnight. Though there was plenty of responsibility to go around, the main culprits were greedy and manipulative bankers that sought profits at the expense of every citizen of this country, as well as the international community as a whole.

How did we prevent the collapse of the financial sector and our economy? By providing an economy-saving bank bailout and stimulus package, costing the taxpayers $8 trillion. Though both the bailout and stimulus package are now immensely unpopular, we must not forget that, in conjunction, they probably saved our economy.

Regardless of this success, we should not have to bailout private sector industries when they commit poor business decisions. That’s Economics 101. Preventing a financial crisis of this magnitude — or worse — from happening again requires strong and enforceable regulation on the financial industry. Senate Democrats are well on their way to providing Americans with the financial security that we need and deserve.

Though the bill is still in progress, CNN Money gives an excellent summary of what we can expect from it: “The proposal would create a new consumer regulator housed inside the Federal Reserve to ensure consumers get a fair shake with mortgages and credit cards… Prohibit financial firms from owning hedge funds or from engaging in proprietary trading on their own accounts… The bill includes a tax on the largest financial firms to create a resolution fund of $50 billion. The fund would be used to pick up part of the tab for banks and financial firms that need help beyond the bankruptcy system… Create a nine-member advisory oversight council of regulators who could sound an alarm before companies are in position to trigger a financial crisis…”

This bill addresses every major concern that Americans have about the financial industry. We cannot allow these major banks to become so fundamental to our economy that we are forced to bail them out. This bill basically ends the concept of “too big to fail.” It also provides security for the average American from abuses and manipulation by providing good, old-fashioned regulation. It’s completely win-win.

Republicans don’t view this bill the same way and have pledged to fight it. Senator Mitch McConnell sees the $50 billion fund as a “bailout” — which is an interesting view, considering the fund is paid for by banks, not taxpayers, and would serve as a tool to smooth failing banks’ exit from the industry. The irony is that Republicans’ main argument against the bill is that it would somehow allow for future bailouts because it doesn’t explicitly state the government won’t bailout banks. By not supporting the bill, the banking industry would remain unregulated and ironically be far more likely to require federal assistance than if the bill had been supported in the first place.

Ultimately, regulating Wall Street will be immensely popular with the general public. It’s also necessary for our continued financial security and prosperity. This is a bad issue to be on “the wrong side” of. This is a no-brainer. Do the right (and popular) thing. Pass this bill.

Jack Melamed is a sophomore in Newcomb-Tulane College. He can be reached for comment at jmelamed@tulane.edu.

Click here to read the Part 1 of Point/ Counterpoint: Financial Reform