When President Barack Obama took office in January 2009, the U.S. was in one of the most serious economic downturns in its history. That month saw a freeze on lending and a loss of nearly 600,000 jobs.
And the repercussions are still being felt.
The abysmal state of the U.S. economy resulted from greed on Wall Street and an absence of oversight in Washington.
By lending to unqualified borrowers, the major banks of the financial system made incredible amounts of money, while exposing the entire system to unprecedented risk. Eventually, housing prices collapsed because of excessive construction. Even though the housing bubble began to fold, major financial banks continued to lend and trade in spite of the dangers.
Now, Goldman Sachs, a global investment group, is involved in a lawsuit with the Securities and Exchange Commission, which claims the group sold investors a mortgage package designed to fail to bet against it with another financial instrument.
Behavior like that led to the collapse of the U.S. economy and widespread unemployment.
The national economy is slowly recovering, posting an increase of 162,000 jobs in March, according to a report from the U.S. Department of Labor. In the wake of the crisis, many agree that financial reforms are essential to the prevention of future disasters.
Democrats in Congress hope to enact reforms and prevent shady dealings that led to the economy’s collapse. Those reforms include creating a new financial oversight agency to protect consumers, increasing government oversight and establishing new federal powers to dismantle failed banks.
For months, the reform legislation has slowly made its way through the House and various Senate committees. Fortunately, Republicans are contributing to discussions.
However, GOP leaders voiced criticism of reform last week. Senate Minority Leader Mitch McConnell charged that the current legislation, sponsored by Democrats, would encourage bailouts.
The bill creates a “fund that guarantees into perpetuity that we’ll be intervening once again to bail out” big firms, McConnell said April 18 on CNN’s “State of the Union.”
McConnell referred to a provision of the bill that includes a $50 billion bailout that would be funded by fees on lending institutions.
The GOP backed off its criticism – which seemed like an opening salvo in an intense debate like the one waged over health care reform – seemingly in recognition that opposition was the wrong political move.
“Even the things that we’ve been saying on our side of the aisle about bailouts and all that, they miss the point and I think take us off on a bunch of rabbit trails,” Republican Sen. Bob Corker of Tennessee said to the Los Angeles Times.
Recognizing that reform has broad support from the American public, GOP leaders have no choice but to cooperate and contribute productively to the Wall Street crackdown.
Even in today’s highly charged political climate, the upcoming reform bill should be passed easily in recognition that the root cause of the collapse was the irresponsibility of giant Wall Street banks.
Vincent DeFrancesco is a sophomore majoring in mass commuincations.