Wall Street greed and Washington neglect have led to what many experts, including Federal Reserve Board Chairman Ben Bernanke, are calling the worst financial crisis since the Great Depression. The crisis in our financial markets is hurting New Hampshire families. It is putting additional strain on middle class families and small businesses who are already struggling in this economy. New Hampshire housing values are declining. The ability to borrow and obtain financing to buy a home or car or inventory for a small business has become more difficult. Retirement and college savings are threatened. While we address the Wall Street crisis, we cannot forget about the challenges Main Street is facing.
And taxpayer money is now being used to stabilize financial markets to avoid a complete collapse of our economy.
The financial markets crisis is a major issue in the race for Senate in NH:
How did we get here?
Legislation championed by former US Senator Phil Gramm and supported by John Sununu gutted government oversight of financial institutions and the Bush administration deliberately chose not to use the laws and tools it did have to rein in Wall Street abuses. Predatory lenders took advantage of the lax oversight from Washington and there was an explosion of risky subprime loans to people with bad credit ratings or who could not afford to carry a high level of debt if interest rates increased or the economy slowed. Washington sat back while unscrupulous lenders pitched subprime loans on TV, stating they would loan to people with bad credit ratings and would require no documentation.
Once made, mortgage lenders quickly sold off bad loans to investment banks and other financial institutions who used new and risky complex financial instruments like derivatives and credit default swaps that were exempted from government oversight. They repacked these risky loans and resold them.
Credit rating agencies with conflicts of interest gave high ratings to these new and risky financial instruments, making it appear to investors that these were actually safe investments.
When interest rates rose on subprime adjustable rate mortgages and the economy slowed, a massive wave of defaults and foreclosures rolled across the country. Families lost their homes, home values dropped, and Wall Street investment banks and other financial institutions holding risky, unregulated mortgage-backed securities found themselves holding paper with declining value. Today, nearly one in ten Americans with a mortgage is in default or somewhere in the process of foreclosure. And Washington sat back and failed to take decisive action to stem the growing financial crisis.
A culture of lax accountability has permeated Washington under George Bush. The failure to provide oversight to Wall Street led to a system-wide financial crisis, but this is just one result of Bush's refusal to exercise oversight. The lack of oversight of private contractors in Iraq has wasted billions of taxpayer dollars. The lack of oversight of reckless speculation in our energy markets is driving up the cost of gasoline and home heating oil.
How can we prevent this from happening again?
We need to strengthen independent oversight of financial markets and to restore real accountability. Jeanne Shaheen believes we need to establish a 21st century regulatory framework and appoint regulators who are committed to enforcing rules that prevent fraud and market manipulations and help maintain stability and prevent crises from developing in the first place:
*End our patchwork system of overlapping and competing oversight and create one streamlined system of oversight that functions effectively in 21st century markets.
*Regulate financial institutions based on the products and services they offer, not based on the kind of institution they are. Risky transactions should be identified, disclosed, and overseen regardless of what kind of financial institution engages in them. All mortgage originators should be subject to the same type of oversight that banks are subject to, including minimum licensing, supervision and capital requirements.
*Capital, liquidity and disclosure requirements should be developed and strengthened for financial institutions and products. Financial institutions which engage in complex instruments like derivatives, collateralized debt obligations and credit default swaps should be subject to minimum capital requirements.
*Strengthen credit rating agency independence and oversight to reduce conflicts of interest.
Lax oversight of financial markets and a willingness to put the needs of Wall Street before the needs of middle class families has gotten us where we are today, facing an almost unprecedented crisis in the financial markets. Jeanne Shaheen believes the American people are resilient and that our financial markets can be restored with the right oversight. In the Senate, Jeanne Shaheen will fight for real oversight, accountability and transparency to ensure that we do not wind up in this situation again.
If we want a new direction, we need a new Senator in NH.
www.jeanneshaheen.org