Although bank CEOs apologize for mistakes, they’re still engaging in reckless practices

Numerous newspapers throughout the country reported that bank CEOs apologized for mistakes they made that led to the Great Recession when they testified before a federal commission investigating what caused the financial collapse.

However, Public Citizen, a public interest organization, reports banks are still engaging in reckless practices.

Robert Weissman, president of Public Citizen, said a great deal is known about what led to the financial crisis:

The Angelides Commission must identify the specific practices that contributed to the crisis and out the perpetrators, including high-level figures on Wall Street and in government. The recently released AIG e-mails indicating that the New York Federal Reserve, then headed by current Treasury Secretary Timothy Geithner, instructed AIG not to identify its credit default swap counterparties is illustrative of the kind of granular reporting and revelations that are needed.

Although much is known about the causes of the financial meltdown, Wall Street and the big banks are still engaging in the same reckless practices, Weissman said. For example:

• Financial institutions are still doling out enormous compensation in the form of salaries and bonuses that rewards risky behavior and short-term performance. Touted reforms are mostly cosmetic changes.
  
• Major banks gobbled up other major financial institutions that were failing, worsening the too-big-to-fail problem.

• Speculative betting is still rampant, with financial institutions recording profits largely due to proprietary trading.

• Banks are still ripping off consumers on such basic things as overdraft protection and fees.

• There has been a total failure to deal with the mortgage meltdown. Only a small fraction of mortgage loans have been modified, with only a tiny few adjustments of principal. Millions of homeowners, many of whom have lost their jobs, are still suffering under crushing payments. Millions of families are needlessly being thrown out of their homes.

• Wall Street’s influence in Washington is as great as ever, even though the financial sector has crashed the national and global economies.

Weissman believes without far-reaching reform efforts, another financial crisis will occur. To prevent it, he said Congress should:

• Ensure that commercial banks aren’t engaged in risky speculative betting.

• Break up the too-big-to-fail banks.

• Prohibit risky financial instruments that serve no social purpose.

• Adopt comprehensive campaign finance reform.

• Ensure that international agreements don’t constrain the country’s ability to regulate properly.

In addition, Public Citizen supports a windfall bonus tax. However, it doesn’t think the Obama administration’s bank fee proposal goes far enough:

The bank fee announced today by the Obama administration is a very welcome first step in recouping the costs of the financial crash from its perpetrators. Wall Street’s till is overflowing – with cash that has come directly and indirectly from taxpayers. Ongoing taxpayer support extends far beyond the Troubled Asset Relief Program and totals in the trillions.

Today’s action should only be a first step. It should be accompanied in the coming year by a speculation tax on financial transactions and a windfall tax on Wall Street bonuses and profits.

Only with the action of citizens and citizen organizations can the power of the banks and Wall Street be beaten back. Let your members of Congress know you favor financial reforms that will help American people not powerful banking and Wall Street interests.

Copyright 2010, Rita R. Robison, Consumer Specialist