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Volker and Luntz: Breaking Financial Reform News

February 1, 2010

The internet is buzzing with  financial reform news today.  On one side (the pro-consumer side), there’s a New York Times op-ed from Paul Volker, former chairman of the Federal Reserve and current chairman of the president’s Economic Recovery Advisory Board.  On the other side, there’s the anti-reform playbook put out by Frank Luntz and published on the Huffington Post today.

It’s important to look at both of these articles to see exactly how desperately reform is needed, and also to get an idea of what we consumer activists and advocates are up against.

Luntz’s piece is a messaging memo designed to help pro-bank elected officials prevent Wall Street reform.  Among other things, it proposes that opponents of reform label the final product as containing “lobbyist loopholes.”  We don’t know what the final financial reform bill will look like, but one thing is for sure: the loopholes are already there.  The loopholes built into the system already allow for “regulator shopping” and encourage lax regulations, while also allowing payday loans, car title loans, and other loan products to be dealt out without federal regulation.  These loopholes and  the lack of federal oversight are the reason we’re in the sticky economic situation we’re dealing with today.

Paul Volker gets that.  His article focuses on the non-bank practices of financial institutions, the results of the big banks’ entitled position as “too big to fail,” and the need for structural reform to ensure that in the future, we won’t have to decide between bailout out the banks or busting up the entire American economy.  He says:

The implication is clear. We need to face up to needed structural changes, and place them into law. To do less will simply mean ultimate failure — failure to accept responsibility for learning from the lessons of the past and anticipating the needs of the future.

(Photo: David Paul Ohmer)

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