Oct 12 2010
By Senator Richard Shelby
A little more than two years ago, the housing market collapsed and almost took the entire financial system with it. The crisis cost millions of Americans their homes, jobs and a massive amount of personal wealth. It was clear to everyone in Washington, Republicans and Democrats alike, that a significant response was necessary to identify the range of problems that led to the crisis.
Faced with a growing economic calamity, our first responsibility was to scrutinize every aspect of the crisis to identify its causes. Such an examination could develop an informed understanding of what happened and why. Only then could we address with confidence the shortcomings of our financial system. If we found deficiencies in the law, we could correct them. If resources were not adequate, we could provide them where they were needed. If we found that regulators failed in their duties, we could hold individuals or organizations accountable. Most important, we could act in an informed manner and in a way most likely to prevent a similar crisis in the future.
The past practices of the Congress provided excellent examples of the way to conduct large-scale financial investigations. After the banking panic of 1907, the House Committee on Banking and Currency formed a special subcommittee known as the Pujo Committee to investigate the “money trust”. In the wake of the Wall Street crash of 1929, the Senate’s Committee on Banking and Currency created an investigatory subcommittee known as the Pecora Commission.
These bodies conducted comprehensive studies, issued detailed reports and ultimately helped produce landmark legislation that served our financial markets well for decades. Unfortunately, in the most recent crisis, the Democratic majority skipped the first two steps and used this crisis as an opportunity to enact a laundry list of big government programs that are destined to cost jobs and stifle economic growth.
The majority’s failure to conduct a thorough examination of the causes of the crisis created a significant void. Natura abhorret a vacuo. Unfortunately, Washington is no different. When congressional Democrats and the Obama administration failed to get traction on a series of dissimilar reform concepts, bureaucrats at the financial regulators stepped in with proposals that empowered them to make most of the major decisions through the rulemaking process.
Because Congress abdicated its responsibility to examine closely the facts and circumstances of the crisis, it failed to create a comprehensive record on which to base significant changes to our regulatory structure. Consequently, the Democratic majority opted for more of the same — more bureaucrats, more regulations, more spending and more government.
Just last week, regulators testified on the implementation of Dodd-Frank. Typically, the purpose of an implementation hearing is to ensure that regulators are faithfully executing the law as prescribed by Congress. Last week’s hearing, however, sounded more like a policy brainstorming session because so much authority now rests with independently funded and unaccountable regulators. Congress has essentially made itself a spectator at its own event.
According to Federal Reserve Chairman Ben Bernanke, the regulators “are still getting their ducks in a row.” While more than 26 million Americans are unemployed or underemployed, it appears that the regulators are still talking about getting together to talk about what to do with the legislation. When they stop talking and start writing rules, however, there is no doubt in my mind that the 2,223 pages of Dodd-Frank will spawn exponentially more pages of regulations that will bury American consumers and job creators in red tape and unnecessary restrictions.
Prior to Dodd-Frank, Congress last passed landmark financial legislation in 1999. That law (Gramm/Leach/Bliley) repealed many Depression-era statutes and became known as the “financial deregulation bill.” GLB, however, quickly became a four-letter word in Washington after the collapse of the financial system in 2008.
I was one of only eight senators — and the sole Republican — to vote against GLB. One of the main reasons I opposed the bill was that it made drastic changes to the financial system that were not fully thought out. I opposed Dodd-Frank for the same reasons and because I believe that it could actually trigger the next crisis.
Congress owed a great deal to those who lost their homes, jobs and savings. The Democrats failed to meet that responsibility. We now have an opportunity to correct that error and revisit and refine this new law in the next Congress. This is an opportunity we must not squander.