America needs Wall Street. Our economic dynamism is directly connected to the ability of the Wall Street investment houses to pool together money and invest in Main Street businesses throughout the country. But over the last decade, Wall Street has diverted from this traditional mission and has focused more of its energy on a growing speculative casino-like market that added no real value to the overall economy.
Yes, America needs Wall Street. But Congress needs to reset the rules of the market to rein in the casino and reorient Wall Street back to the traditional investment activities that make it so indispensible to our free market economy.
So, how do we do this? First, we need to place common sense restrictions on the type of risky trading activity that helped prompt this economic collapse. We do this by assuring that complex and shadowy derivative investments are trading on an open, transparent, and regulated market, so that derivative exposure can be seen by regulators, investors, and rating agencies. And we need a stronger federal regulator who can set minimum capital requirements and force large institutions to sell off risky investments if an institution gets over-exposed.
Second, we need to put policies into place to limit the size and scope of financial companies so that we never again face a bank that is “too big to fail.” That’s why the financial reform bill making its way through Congress gives the federal government new powers to force the break down of companies that start to get into trouble. The House version of the bill also includes an account that would be funded by assessments on financial companies, much like the FDIC, and would be used to wind down and dissolve failing institutions. This fund would assure that taxpayers never again have to pay for the mistakes of financial companies.
Third, we must recognize who got us into this mess and, just as importantly, who didn’t get us into this mess. Local community banks are alive and thriving today because they did not engage in the reckless speculative behavior we saw on Wall Street. They made loans to people who could pay them back, and stayed rooted to their traditional mission. So any new regulatory agencies or powers need to be focused on the bad actors who pose a systemic risk to our economy.
Finally, we need to take the politics out of this reform debate. There were, and are, some really greedy people on Wall Street who don’t have our economy’s best interests at heart. But their existence doesn’t mean we should demonize the whole industry, or turn support or opposition to the reform bill into a political wedge issue. The effects of the financial meltdown are impacting everyone in Connecticut, regardless of whether you happen to be a Republican or Democrat. And like previous financial reform bills, this one should be bipartisan too. Frankly, that’s a message that both parties need to hear more often.
Our economy is better off because of our historically vibrant investment markets. But if we don’t start getting those markets back to their original purpose, and stop the reckless trading that primarily benefits only traders and speculators, Wall Street will continue to be too much of an economic liability and not enough of an asset.
Christopher Murphy, a Democrat from Cheshire, is in his second term in the U.S. House of Representatives. He represents District 5, which includes New Britain, Waterbury, Meriden and Danbury.
