Tuesday, July 13, 2010

Despite Its Flaws, the Financial Bill Should Be Passed by Congress

Second only to the much-debated healthcare bill that became law in March, the financial reform bill known as the Dood-Frank Wall Street Reform and Consumer Protection Act, now in the final stages of the legislative process in Washington, is the most significant piece of legislation to have appeared on the floor of Congress since President Obama took office. As with the healthcare bill, this legislation is ambiguous at best, with some excellent aspects side-by-side with deeply troubling ones. But despite its flaws, the proposed financial reform package is something that 21st Century Jeffersonians should get behind.

Thomas Jefferson deeply distrusted the centralizing tendancies of the federal government in Washington, and he worked tirelessly throughout his career to keep political power as localized as possible. But more than anything else, he feared the power of uncontrollable financial institutions, lead by Alexander Hamilton and his "stockjobbing" minions, which threatened the prosperity and the very way of life of the yeoman farmers whom Jefferson loved so well. If Jefferson could speak to us today, he would talk as much, if not more, about the threat posed by the unchecked greed of Wall Street executives as of the threat posed by an over-zealous government in Washington.

The economic crisis of the past few years, which continues to fester in the form of stubbornly high unemployment, was directly caused by the callous and cynical greed of a very few men and women on Wall Street, and it is imperative that the government take steps to ensure that such a travesty cannot happen again. 21st Century Jeffersonianism strictly believes in small government, but also maintains that it is the government's responsibility to intervene in certain cases where it is necessary to protect citizens from being exploited. In the case of Wall Street reform, this is certainly one of those cases.

As summarized by a write-up on the bill by the Los Angeles Times:

Its major provisions include a new council of regulators charged with protecting the financial system against large-scale threats such as the one posed by the last housing bubble; new authority for regulators to take over and dismantle financial institutions that are failing; more safeguards and transparency for financial derivatives; strict limits on how much a bank with insured deposits can invest in hedge funds and private-equity firms; and a new, independent group of regulators to protect consumers against predatory or misleading financial products.
It is undeniable that the bill will expand the power of the federal government over the financial sector of the country, and as such should give 21st Century Jeffersonians pause. But the lack of legislative action will simply give Wall Street a blank slate to continue the same activities which lead to the recent economic crisis in the first place, thus presenting the disquieting possibility that a similar situation could happen again in a few years. Weighing the question in the balance, the good provisions of this bill outweigh the bad ones. An imperfect bill is better than no bill at all.

Two of the most important provisions of this bill are the limitations placed on banks in terms of their ability to invest in hedge funds and private-equity firms and the regulations against predatory and misleading financial products. These measures will help prevent citizens from being exploited by unscrupulous Hamiltonian stockjobbers, who have been making fortunes off the backs of hard-working Americans.

The provisions of the bill will expand the power of the Federal Reserve, which is far from desirable. It is an unelected institution, which was not sanctioned by the Constitution, that wields far too much influence over the American economy and, consequently, the lives of ordinary American citizens. An unlikely alliance between two members of Congress, libertarian Ron Paul (R-TX) and liberal Alan Grayson (D-FL) was able to insert a provision into the bill that would initiate a one-time audit of the Fed, but while this is welcome, it is far from the ideal of having the Fed's books open to public scrutiny at all times.

This bill is nowhere near as good as it could have been. But the alternative to passing it would be to do nothing, and therefore to let the Wall Street villains continue lining their pockets at the expense of ordinary Americans. Politics is the art of the possible, and we often have to settle for less than what we want. 21st Century Jeffersonians should support the passage of this legislation, while readying themselves for more battles further down the road.

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