In the Public Interest: Congressional Backbone Needed

In the Public Interest

Congressional Backbone Needed

by Ralph Nader

Congress needs to show some backbone before the federal government pours more money on the financial bonfire started by the arsonists on Wall Street.

Congress should hold a series of hearings and invite broad public comment on any proposed bailout. Congress is supposed to be a co-equal branch of our federal government. It needs to stop the stampede to give Bush a $700 billion check. Public hearings should be held to determine what alternatives might exist to the four-page proposal advanced by Treasury Secretary Henry M. Paulson.

Whatever is ultimately done, the bailout plan should not be insulated from judicial review. Remember there is a third co-equal branch of government: the judiciary. The judiciary does not need to review each buy-and-sell decision by the Treasury Department, but there should be some boundaries established to the Treasury Department’s discretion. Judicial review is needed to ensure that unbridled discretion is not abused.

Sunlight is a good disinfectant. The bailout that is ultimately approved must provide for full and timely disclosure of all bailout details. This will discourage conflicts of interest and limit the potential of sweetheart deals.

Firms that accept government bailout monies must agree to disclose their transactions and be more honest in their accounting. They should agree to end off-the-books accounting maneuvers, for example.

Taxpayers must be protected by having a stake in any recovery. The bailout plan should provide opportunities for taxpayers to recoup funds that are made available to problem financial institutions, or to benefit from the financial institutions’ rising stock price and increased profitability after being bailed out.

The current so-called "regulators" cannot be trusted. The U.S. Government Accountability Office ( GAO ), “the investigative arm of Congress” and “the congressional watchdog," must regularly review the bailout. We cannot trust the financial "regulators," who allowed the slide into financial disaster, to manage the bailout without outside monitoring.

It is time to put the federal cop back on the financial services beat. Strong financial regulations and independent regulators are necessary to rebuild trust in our financial institutions and to prevent further squandering of our tax dollars. The Justice Department and the SEC also need to scrutinize the expanding mess with an eye to uncovering corporate crime and misdeeds. Major news outlets are reporting that the FBI is investigating American International Group, Fannie Mae, Freddie Mac, and Lehman Brothers.

Cap executive compensation and stop giving the Wall Street gamblers golden parachutes. The CEOs who have created the financial disaster should not be allowed to leave with millions in hand when so many pensioners and small shareholders are seeing their investments evaporate. The taxpayers are bailing out Wall Street so that the financial system continues to function, not to further enrich the CEOs and executives who created this mess.

Congress should pass the Financial Consumers’ Information and Representation Act, to permit citizens to form a federally-chartered nonprofit membership organization to strengthen consumer representation in government proceedings that concern the financial services industry. As the savings and loan disasters of the 1980s and the Wall Street debacles of the last few years have demonstrated, there is an overriding need for consumers and taxpayers to have the organized means to enhance their influence on financial issues.

The repeal of the Glass-Steagall Act, separating traditional banks from investment banks, helped pave the way for the current disaster. It is time to re-regulate the financial sector. The current crisis is also leading to even further conglomeration and concentration in the financial sector. We must revive and apply antitrust principles, so that banking consumers can benefit from competition and taxpayers are less vulnerable to too-big-to-fail institutions, which merge with each other to further concentration.

Congress should impose a securities and derivatives speculation tax. A tax on financial trading would slow down the churning of stocks and financial instruments, and could raise substantial monies to pay for the bailout.

Regulators should impose greater margin requirements, making speculators use more of their own money and diminishing reckless casino capitalism.

Ask your representative a few questions: “What should be done to limit banking institutions from investing in high-risk activities?" "What should be done to ensure banks are meeting proper capital standards given the financial quicksand that has spread as a result of the former Senator Phil Gramm’s deregulation efforts?" And, "What is being done to protect small investors?"

P.S. Shareholders also have some work to do. They should have listened when Warren Buffett called securities derivatives a “time bomb” and “financial weapons of mass destruction." The Wall Street crooks and unscrupulous speculators use and draining of "other people’s money" out of pension funds and mutual funds should motivate painfully passive shareholders to organize to gain greater authority to control the companies they own. Where is the shareholder uprising?