July 12, 2011
Report: Wall Street’s Opposition to Dodd-Frank Reforms Echoes Its Resistance to New Deal Financial Safeguards
Bedrock Consumer Protections Once Were Flogged as ‘Exceedingly Dangerous,’ ‘Monstrous Systems’ That Would ‘Cripple’ the Economy
WASHINGTON, D.C. – As the nation approaches the first anniversary of the Dodd-Frank financial reform law, opponents are claiming that the new measure is extraordinarily damaging, especially to Main Street. But industry’s alarmist rhetoric bears striking resemblance to the last time it faced sweeping new safeguards: during the New Deal reforms. The parallels between the language used both then and now are detailed in a report released today by Public Citizen and the Cry Wolf Project.
In the decades since the Great Depression, Americans acknowledged the necessity of having safeguards in place to prevent another crash of the financial markets, including the creation of the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC), and laws requiring public companies to accurately disclose their financial affairs. Although these are now seen as bedrock protections when they were first introduced, Wall Street cried foul, the new report, “Industry Repeats Itself: The Financial Reform Fight,” found.
“The business community’s wildly inaccurate forecasts about the New Deal reforms devalue the credibility of the ominous predictions they are making today,” said Taylor Lincoln, research director of Public Citizen’s Congress Watch division and author of the report. “If history comes close to repeating itself, industry is going to look very silly for its hand-wringing over Dodd-Frank when people look back.”
In 1933, when a law was passed that provided government-backed insurance for most consumers’ bank deposits and gave the government authority to take control of failed banks and sell them to solvent institutions, the president of the American Bankers Association called the measure “exceedingly dangerous.” With creation of the FDIC, bank failures fell from 4,000 in 1933 to just 52 in 1934.
“Wall Street is still trying to stop the rules that will make our financial system safe,” said Donald Cohen, director of the Cry Wolf Project. “It’s just like they’ve been doing for 75 years.”
In the 1930s, the financial industry elevated its rhetoric during the debate over the Securities Act of 1934, which eventually established the SEC. The president of the U.S. Chamber of Commerce said requiring publicly traded companies to register their securities with a federal commission would force a company to “sign away its constitutional rights to protect its property rights from being taken away from it without due process of law.” Today, the U.S. Chamber of Commerce hails the principles of the 1934 Act.
By 2010, the U.S. Chamber was busy warning, without merit, that Dodd-Frank would harm corner butchers and bakers because “Washington wants to make it even tougher on everyone.” Others cast the bill’s provisions as “stalking horses” for Washington to intervene in “virtually every facet of the U.S. economy” and even ruses for “kicking conservative media personalities off the air.”
In fact, the Dodd-Frank Wall Street Reform and Consumer Protection Act is designed to prevent another Wall Street crash, which really made it tough on everyone by causing massive job loss and severely hurting corner butchers and bakers, as well as retirees, families with mortgages and others. The Dodd-Frank law increases transparency (particularly in derivatives markets); creates a new Consumer Financial Protection Bureau to ensure that consumers receive straightforward information about financial products and to police abusive practices; improves corporate governance; increases capital requirements for banks; deters particularly large financial institutions from providing incentives for employees to take undue risks; and gives the government the ability to take failed investment institutions into receivership, similar to the FDIC’s authority regarding commercial banks. Much of it has yet to be implemented.
However the bottom line is that repetition of rhetoric is not adding weight to industry complaints; it is only making clear that it endlessly cries wolf.
Public Citizen is a national, nonprofit consumer advocacy organization based in Washington, D.C.
The Cry Wolf Project is a network of advocates, researchers and scholars dedicated to demonstrating that, in fact, conservatives and business groups are only “crying wolf” to delay, prevent and weaken important and common sense regulations that save lives, clean our environment and make our families more secure. The Cry Wolf Project chronicles important consumer, environmental and health and safety reforms, shows how they were opposed by industry and their ideological and political allies, and demonstrates how their predictions of economic catastrophe failed to materialize.