Just one year has passed since President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, and in that time a strange amnesia has developed among many on Wall Street and here in Washington. Apparently content to ignore the economic devastation we just experienced, critics of the new law choose not to tally the costs from the lost jobs, homes and investments of millions of American families. Instead, critics fixate on the costs of regulating financial companies with demonstrated ability to put our entire economy at risk.
The Wall Street Reform Act was a direct response to the worst financial crisis since the Great Depression, a crisis that didn’t just happen by itself. It was the result of reckless and irresponsible behavior on Wall Street, a lack of consumer protections, and a failure by financial regulators to take action even as the warning signs grew ever larger.
However, these reforms have been under constant attack since their inception. Opponents of Wall Street reform continually repeat misleading claims that the new law was hastily conceived, and powerful Wall Street apologists use revisionist history when claiming that new regulations are too costly and overly burdensome.
According to the Treasury Department’s chief economist, households lost approximately $17 trillion in wealth between 2007 and 2009 because of the financial crisis. Several years later, our unemployment rate remains stuck at 9.2 percent, household incomes in the middle class are stagnating, and the housing market remains depressed. On Wall Street, however, 2010 was one of the best years on record. Wall Street firms paid out more than $20 billion in bonuses last year, and profits at the largest banks are at near-record highs. There’s nothing wrong with making money, and it’s good news that our banks are in the black. But it’s hardly credible to argue that the new regulations are too costly when executive compensation in the financial sector is growing by leaps and bounds.
It’s true that Wall Street is going to have to pay to comply with the new rules. But these negligible costs — a minimum down payment for firms to ensure they compete in a more stable and fair financial system — pale in comparison to the sheer magnitude of the price our nation paid for inadequate regulation. The American people don’t need an economist to explain to them whether they or Wall Street bore the greatest costs from the financial crisis.
Despite some of my colleagues’ claims to the contrary, the truth is that the Wall Street reform law is the product of a rigorous, thorough, transparent, and yes, bipartisan, process. After nearly 50 hearings in the Senate, and scores more in the House, Congress identified the abuses and loopholes that fueled the catastrophe and put forward clear proposals, many of which incorporated Republican ideas, to end them.
While passing the Wall Street Reform Act was a huge step forward in stabilizing our financial system, there is more to be done. The regulators are still working to finalize many new rules to implement the law, in an open process that provides opportunity for industry and public comments to inform the outcome.
Implementation requires careful congressional oversight. Since becoming chairman earlier this year, I have held more than 25 Banking Committee hearings and bipartisan briefings on financial reform, called the top financial regulators to testify and have met with them individually. The Banking Committee has heard from industry representatives, consumer advocates, policy experts and academics, examining the full range of issues covered by the new law. We are exercising our oversight authority, following the regulators’ progress closely and are committed to making sure they get it right.
Critics say the bill is too long and complicated, but complex problems require complex solutions. They say it’s too expensive, but ignore the trillions of dollars we risk by not having strong regulations. And they say we should repeal it, but fail to offer anything credible in its place.
Efforts to tear down the new law, either through repeal or by defunding the regulators who enforce it, are misguided and irresponsible. The last financial crisis cost us trillions of dollars and destroyed millions of jobs. To ignore the lessons of the past, and thus to invite another disaster, is a mistake we cannot afford to make.
Johnson is chairman of the United States Senate Banking, Housing and Urban Affairs Committee.