The Battle for Wall Street Reform Continues

— Op-Ed by Elizabeth Warren | The Boston Globe

Since the great financial crisis of 2008, big bank CEOs and their lobbyists have led the charge to block efforts to regulate Wall Street. Their message has been clear: leave it to us — the big Wall Street banks — to regulate ourselves because we’re the only ones who understand how the world really works.

When JP Morgan CEO Jamie Dimon announced a $2 billion loss from trades he called “stupid,” “sloppy” and “poorly monitored” last week, he didn’t change his mind about who he thinks should call the shots. Dimon said he would clean this mess up himself and indicated that it would be business-as-usual in no time at all. “We will learn from it, we will fix it, and we will move on.” The message to those who think there should be more oversight of the biggest banks was clear: stay out.

After the crash of 2008, the country called for greater oversight of the biggest financial institutions to prevent another crash. But even after billions in taxpayer-funded bailouts, Wall Street resisted change. When the battle for financial reform took place in 2010, thundering herds of lobbyists filled the halls of Congress trying to undermine meaningful changes.

Reforms got pushed in different directions. Oversight of community banks and credit unions was in many cases ramped up, even though they were not the ones who brought down the economy. Meanwhile, the biggest banks fought off many key regulations that might reduce their size or cut into their profitability. While many new rules made it through, too many others were stopped cold.

Even after Dodd-Frank became law, the fight wasn’t over. Open public debate turned into guerrilla warfare over rules to put the law to work. For two years now, Wall Street bankers and their lobbyists have pushed regulators to water down those rules and have pushed for loopholes for their lawyers to wiggle through.

They have also urged Congress to gut the funding for enforcement at the regulatory agencies and to chip away at the independence of the new Consumer Financial Protection Bureau. And they have continued to bankroll candidates for public office and pour funds into their lobbying, hoping they can pull the strings without anyone noticing.

According to the Center for Responsive Politics, in 2011 alone, the financial industry spent more than $161 million on lobbying efforts. Jamie Dimon and JP Morgan, for example, spent more than $7.6 million lobbying in 2011 and almost $2 million more as of this April. Perhaps most prominently, JP Morgan has forcefully opposed the Volcker Rule, which restricts certain kinds of speculative trades that increase risk in the banking system.

The specific laws are technical and complex, and already there are a number of commentators who point out that even the Volcker Rule might not have prevented the particular problem that led JP Morgan to lose $2 billion in a matter of weeks. Others note that JP Morgan has enough money that it can afford a $2 billion loss.

But these comments miss the basic point: too often, Wall Street banks act like they alone should decide if they have taken on too much risk. If the big bank CEOs ran different kinds of companies, ones that weren’t big enough to take down the entire economy when they get it wrong, then oversight would be less critical. But reckless gambling by the big banks can affect the jobs, the pensions and the tax bills of every American — and that means that those company’s actions should be subject to careful oversight.

That’s what government does: it passes laws to keep markets honest, and it puts a smart cop on the beat to enforce those laws. It is hard, but it isn’t brain surgery. And it starts only if we have a Congress that has the guts to stand up to the big banks and their armies of lobbyists.

Elizabeth Warren is a Democratic candidate for US Senate.