The top Republican in the U.S. Senate has announced strong opposition to a Democratic proposal to reform America's battered financial system. A partisan battle has erupted over how best to prevent financial meltdowns and the economic havoc they inflict.
The struggling U.S. economy still bears scars from 2008, when a cascading failure of banks, investment houses, mortgage giants and insurance firms obliterated much of America's financial landscape, froze credit for consumers and businesses, and accelerated a plunge into the deepest recession since World War II. In a desperate bid to prevent complete economic collapse, the federal government spent hundreds of billions of dollars to bail out scores of near bankrupt private financial institutions.
Republicans and Democrats agree that the dire turn of events must never be repeated. But how best to fix the financial system is shaping up as the latest partisan fight to consume Washington.
Tuesday, Senate Minority Leader Mitch McConnell dashed waning hopes of bipartisan support for a Democratic financial reform bill. Addressing the Senate, the Kentucky Republican said the proposed package gives too much authority to the federal government and fails to protect taxpayers from the costs of any future bailouts.
"We cannot allow endless taxpayer-funded bailouts for big Wall Street banks," said Mitch McConnell. "That is why we must not pass the financial reform that is about to hit the [Senate] floor [for debate]. The fact is: this bill would not solve the problems that led to the financial crisis. It would make them worse."
Under the Democratic bill, the U.S. central bank, known as the Federal Reserve, would be empowered to craft and enforce consumer protection rules for large financial institutions. Banks would also be restricted in the types of investments they can make. It was private institutions' dealings with complex financial products tied to special home mortgages for high-risk borrowers that helped spark the meltdown of 2008.
The Obama administration says the United States cannot afford to drag its feet on financial reform. U.S. Treasury Secretary Timothy Geithner had this response to Senator McConnell:
"Look at the devastation caused by this financial crisis," said Timothy Geithner. "Look at the damage it did to tens of millions of Americans. I do not think there is a tenable position anyone could take that says we do not need to fix this system."
Geithner says the current system allowed banks and other institutions to take huge risks without bearing the cost of failure.
"And you had the spectacle of the United States of America come into the worst financial crisis since the Great Depression [of the 1930s] and had, basically, no tools to unwind, to put into bankruptcy large institutions," he said. "The taxpayer faced an untenable choice: either to let the system collapse or put hundreds of billions of dollars of taxpayer money at risk. And I think that fundamental recognition is going to drive us to a necessary, essential, very well-designed, sweeping set of reforms."
But while applauding safeguards against future financial meltdowns, some progressive voices say America's financial sector must pay for damages already inflicted. The head of America's largest union umbrella group, AFL-CIO President Richard Trumka, says banks that survived thanks to the federal bailout are now flooding Washington with lobbyists to defeat financial reform, without taking responsibility for the havoc and economic losses they caused.
"Wall Street just hasn't gotten the message," said Richard Trumka. "They [banks] all helped to create the crisis. They all helped destroy 11 million [American] jobs. And quite frankly, they should start paying to create jobs that they destroyed.
In fact, many recipients of federal bailout money are repaying the loans with interest, minimizing government losses and, in some cases, giving the U.S. Treasury a modest profit on the initial layout of funds. Nevertheless, no one is arguing that overall effect of the financial crisis has been anything but devastating to the U.S. economy and its workforce.