New Bill Will Separate Commercial And Investment Banks

Travis Martinez, University of New Mexico/Talk Radio News Service

Senators Maria Cantwell (D-Wash.) and John McCain (R-Ariz.) introduced bipartisan legislation Wednesday that would prohibit commercial banks from affiliating themselves in any manner with investment banks or securities firms.

The Banking Integrity Act of 2009 would restore 1933 legislation, repealed in 1999 under legislation guided by former Sen. Phil Gramm (R-Texas), to establish a wall between commercial and investment banking to help protect depositors' money from being put at risk by Wall Street speculation.

"I'm sure that Senator Gramm probably does not agree with this legislation. It doesn't change our relationship, we just don't agree," said McCain.

“For nearly 60 years, a firewall maintained the integrity of banking systems; preventing self-dealing and other financial abuses; and limited stock market speculation,” said Cantwell during a press conference. “Our bill would return that firewall.”

Under Cantwell-McCain, major financial firms currently operating as both commercial banks and investment houses would have to make a decision on whether to focus on commercial or investment banking.

“I want to ensure that we never stick the American taxpayer with another $700 billion or even larger tab to bailout the financial industry. It is time to put a stop to the taxpayer financed excesses of Wall Street,” said McCain.

McCain brushed off concerns that Gramm, who served as a campaign adviser for the Arizona senator's 2008 presidential campaign, would be troubled by the move to sweep away his legislative accomplishments.

Bush administration “is trying to privatize Wall Street gains and socialize Wall Street losses”

“A lot of the people that we represent won’t...have a job at Christmastime,” said Congressman Elija Cummings (D-Md.) at a hearing at the Domestic Policy Subcommittee of Oversight and Government Committee. The House Subcommittee met to discuss “Is Treasury Using Bailout Funds to Increase Foreclosure Prevention as Congress Intended?”

“I don’t want these [bailout] companies coming to Congress for a handout, thinking they can take the money, do whatever they want to do, get their manicures, pedicures, massages, pay $1600 a room and then come dancing back to us and say ‘give me more,’ when the American people’s tax dollars are being wasted,” said Cummings, referring to how some companies are using money from the $700 billion bailout plan to give bonuses to their employees. “The United States banking system is turning to the American taxpayer to bail them out and the administration is fully behind them. This administration wants to privatize Wall Street’s gains and socialize Wall Street’s losses,” said Cummings.

“We’ve got millions of people threatened with losing their homes...why won’t the Treasury act swiftly and forcefully to maximize assistance to homeowners...and play a significant role in modification of home loans at risk of imminent default?” asked Chairman Dennis Kucinich (D-Ohio). “The Treasury has been given almost omnipotent power, and you have unfortunately not exercised the interest of homeowners.”

“With due respect sir,” responded Neel Kashari, Interim Assistant Secretary of Treasury for Financial Stability, “if we had spend all $700 billion on loans that’d be about three million loans. There are 55 million mortgages in America...we could benefit three million directly by buying over loans or we could benefit every American by not allowing the financial system to collapse.” Kashari defended the Treasury Department’s decision to invest the bailout money in big banks in order to secure the credit market. “Many people around the country...need help,” said Kashari, “if we went out to each of the people and each of the businesses and helped them directly the $700 billion wouldn’t go far enough. We’re trying to take the $700 billion to stabilize the system as a whole...to help every American.”

Rep. Chabot on Bankruptcy

The $700 billion bailout would cost taxpayers about $6,000 to $10,000 per household, said Rep. Steve Chabot (R - Ohio) in a conference call which included Wade Henderson of the Leadership Conference on Civil Rights and Mike Calhoun of the Center for Responsible Lending.

"Congress would lift the federal debt...to over $11.3 trillion," said Chabot.

Chabot had serious concerns about the bailout bill. "This would set a dangerous precedent in getting the federal government this involved in what in essence is supposed to be a market-based system...[I] am concerned this will not be the last bailout." Chabot felt that taxpayers should not have to deal with the problems that Wall Street created and he felt that nothing was being done to help the Americans that faced bankruptcy.

Henderson and Calhoun discussed a bankruptcy bill that would make it easier for families to pay off their mortgage. The bill would have prevented "up to 600,000 forclosures," said Calhoun, "but because of intense pressure by industry lobbyists, the same industry that created the crisis and is receiving its own life preserver from the government, this provision was blocked."

Chabot was in favor of the bill. "We're not doing anything to really help these people, who, if we had helped them, we might not be in the problems we're in right now." It is not likely that the bankruptcy bill will be included in the bailout package which the House will vote on this week, but Chabot is hopeful that the bankruptcy laws will be changed in the future.