AUGUSTA – In spring 2006, housing prices started to fall — first in California, Arizona and Florida, then throughout the country. To the disbelief of many of us pursuing the American dream, home values tumbled.

If this were only a housing bubble, we might have been able to absorb a short-term setback in the economy and recover. But this was different.

Large institutions that dominated the financial industry — megabanks, investment banks, insurance companies and hedge funds — decided to dodge bank regulations and gamble with their (and our) assets. Bad mortgage loans were packaged and sold as “securities,” labeled with dubious ratings by credit agencies, and then underwritten (through the ingenious and now infamous “credit default swap”) by insurance companies.

Eventually, in 2008, the house of cards collapsed — from mortgage companies and banks to investment and insurance giants, like Lehman Brothers, Merrill Lynch and AIG.

The rest, as we know, is history. The U.S. and world economies entered the worst recession since the Great Depression. And we are experiencing the consequences of this crisis: foreclosed homes, sluggish businesses, dwindling jobs. Older workers — their retirement nest eggs depleted and their home equity diminished — are working more years than expected.

As the poverty rate climbs, more and more children are living in hunger. It is bewildering, to say the least, that some people call this the worst time to pass a strong financial reform bill.

Sens. Olympia Snowe and Susan Collins once again put aside partisan politics and supported the Wall Street Reform and Consumer Protection Act, which President Obama has now signed into law.

Like the majority of Mainers, they believe that financial reform will “help ensure a stable financial system, help to grow the economy and prevent future job loss” (Pew Research). We hope both senators will continue to show their support during the process of regulator appointment and rule writing to assure the reform achieves its full effect.

Consumer protection, a centerpiece of the financial reform bill, will prevent the spread of predatory lending practices, such as subprime mortgage loans, which overheated the housing market, overextended borrowers’ credit, and inflated an $8 trillion housing bubble.

The new law authorizes a council of regulators to monitor systemic risks that financial institutions could pose to our economy. It imposes higher capital, leverage and liquidity standards on the biggest, riskiest banks and creates oversight for large, interconnected financial companies like AIG and mortgage financiers.

Those in both parties have proposed rules to restrict banks from making risky bets with taxpayer-backed deposit funds or marketing risky products to customers while betting they will fail, Goldman Sachs-style.

For the first time, government will have the authority to shut down a failing banking conglomerate without having to save them with taxpayer dollars. The law makes derivative trading and hedge funds more transparent and restructures credit rating to avoid conflicts of interest and ensure more credible risk assessment.

Nobel Prize-winning economist and New York Times columnist Paul Krugman has suggested that we ought to “make banking boring” again, because history shows that free-wheeling and dealing on Wall Street does not drive real economic growth. The era of conservative banking following the Great Depression and World War II was also a time of great prosperity.

In contrast, as many regulations were lifted after 1980, the financial industry exploded in size and complexity and debt rose rapidly, reaching nearly the same level relative to GDP as in 1929. Banks grew into financial empires, becoming too opaque to regulate and “too big to fail.”

It is time to protect Main Street from Wall Street. While Wall Street raked in tens of billions of dollars in bonuses, Main Street hemorrhaged jobs at an accelerated rate. About 2.6 million jobs were lost in 2008 alone, the most in six decades.

Today in Maine, there are still more than 56,000 people without jobs according to the official unemployment rate. If you count the underemployed and “discouraged workers,” it could be more than 100,000, 15 percent of our work force. The financial reform bill is a timely piece of legislation to tackle the root cause of this recession.

With banks spending $1.4 million a day lobbying against reform, it is not surprising to hear politicians crying wolf about “overregulation.” But with so many families and businesses still suffering, we need to stand firm against special interests.

Financial reform can only succeed if we have tough regulators to oversee the financial industry and strict rules to enforce accountability on Wall Street. It is time for Wall Street to work for Main Street.

It is time to restore stability to our financial future.


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