Cleaning up finance? That WOULD be a surprise

Gary Gensler, head of the Commodity Futures Trading Commission, also wants to make it harder for banks to disguise speculative wagers as permissible trading done for customers, according to the officials briefed on the discussions. Underscoring the tension, other regulators privately groused that Mr. Gensler’s agency — which spent most of the last few years completing dozens of other new rules under Dodd-Frank — was too slow to raise concerns about the Volcker Rule.

Thank you, Americans for Financial Reform and the Roosevelt Institute for inviting me to speak today. I’ve been working very closely with both AFR and Roosevelt for years now, and I’m really delighted to be here.

It has been five years since the financial crisis, but we all remember its darkest days. Credit dried up. The stock market cratered. Historic institutions like Lehman Brothers and Merrill Lynch were wiped out. There were legitimate fears that our economy was tumbling over a cliff and that we were heading into another Great Depression . We averted that grim outcome , but the damage was staggering. A recent report by the Federal Reserve Bank of Dallas estimated that the financial crisis cost us upward of 14 trillion dollars — trillion, with a t. That’s $120,000 for every American household — more than two years’ worth of income for the average family. Billions of dollars in retirement savings disappeared . Millions of workers lost their jobs and their sense of financial security. Entire communities were devastated. And a Census Bureau study that came out just a couple months ago shows that home ownership rates declined by 15 percent for families with young children. The Crash of 2008 changed lives forever.

In April 2011, after a two - year bipartisan enquiry, the Senate Permanent Subcommittee on Investigations released a 635 - page report that identified the primary factors that led to the crisis. The list included high - risk mortgage lending, inaccurate credit ratings, exotic financial products , and, to top it all off, the repeated failure of regulators to stop the madness. As Senator Tom Coburn, the Subcommittee’s ranking member, said: “Blame for this mess lies everywhere from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight.” Even Jamie Dimon, the CEO of JPMorgan Chase, has emphasized inadequate regulation as a source of the crisis. He wrote this to his shareholders: “had there been stronger standards in the mortgage markets, one huge cause of the recent crisis might have been avoided. ”

The crash happened quickly and dramatically, and it caught our nation and apparently even our regulators by surprise. But don’t let that fool you. The causes of the crisis were years in the making, and the warning signs were everywhere. As many of you know, I spent most of my career studying the growing economic pressures on middle class families — families that worked hard and played by the rules but still can’t get ahead. And I’ve also studied the financial services industry and how it has developed over time. A generation ago, the price of financial services — credit cards, checking accounts, mortgages, and signature loans — was pretty easy to see. Both borrowers and lenders understood the basic terms of the deal. But by the time the financial crisis hit, a different form of pricing had emerged. Lenders began to use a low advertised price on the front end to entice customers, and then made their real money with fees and charges and penalties and re - pricing in the fine print. Buyers became less and less able to evaluate the risks of a financial product, comparison shopping became almost impossible , and the market became less efficient. Credit card companies took the lead, with their contracts ballooning from a page and a half back in 1980 to more than 30 pages by the beginning of the 2000’s. And teaser - rate credit cards — which advertised deceptively low interest rates — paved the way for teaser - rate mortgages. When I worked to set up the Consumer Financial Protection Bureau, I pushed hard for steps that would increase transparency in the marketplace. The crisis began one lousy mortgage at a time, and there is a lot we must do to make sure there are never again so many lousy mortgages. CFPB made some important steps in the right direction, and I think we’re a lot safer than we were.

But what about the other causes of the crisis ? … Where are we now, five years after the crisis hit and three years after Dodd - Frank? I know there has been much discussion today about a variety of issues, but I’d like to focus on one in particular. Where are we now on the “Too Big to Fail” problem? Where are we on making sure that the behemoth institutions on Wall Street can’t bring down the economy with a wild gamble ? Where are we in ending a system that lets investors and CEOs scoop up all the profits in good times, but forces taxpayers to cover the losses in bad times? After the crisis, there was a lot of discussion about how Too Big to Fail distorted the marketplace, creating lower borrowing costs for the largest institutions and competitive disadvantages for smaller ones. There was talk about moral hazard and the dangers of big banks getting a free, unwritten, government - guaranteed insurance policy. Sure, there was talk, but look at what happened: Today , the four biggest banks are 30% larger than they were five years ago . And the five largest banks now hold more than half of the total banking assets in the country. One study earlier this year showed that the Too Big to Fail status is giving t he 10 biggest US banks an annual taxpayer subsidy of $83 billion. Wow . Who would have thought five years ago , after we witnessed firsthand the dangers of an overly concentrated financial system, that the Too Big to Fail problem would only have gotten worse?

We should not accept a financial system that allows the biggest banks to emerge from a crisis in record - setting shape while working Americans continue to struggle. And we should not accept a regulatory system that is so besieged by lobbyists for the big banks that it takes years to deliver rules and then the rules that are delivered are often watered - down and ineffective . What we need is a system that puts an end to the boom and bust cycle. A system that recognizes we don’t grow this country from the financial sector; we grow this country from the middle class. Powerful interests will fight to hang on to every benefit and subsidy they now enjoy . Even after exploiting consumers, larding their books with excessive risk, and making bad bets that brought down the economy and forced taxpayer bailouts, the big Wall Street banks are not chastened . They have fought to delay and hamstring the implementation of financial reform, and they will continue to fight every inch of the way. That’s the battlefield. That’s what we’re up against. But David beat Goliath with the establishment of CFPB and, just a few months ago, with the confirmation of Rich Cordray. David beat Goliath with the passage of Dodd - Frank. We did that together – Americans for Financial Reform, the Roosevelt Institute, and so many of you in this room. I am confident David can beat Goliath on Too Big to Fail . We just have to pick up the slingshot again.