Hearing Offers Solutions for 'Too Big to Fail' Problem
Rep.Carolyn B. Maloney, chair of Joint Economic Committee, filed this guest blog post:
Today’s Joint Economic Committee hearing provided a unique opportunity to hear more information about solutions to the “too big to fail” problem from a group of distinguished panelists from across the political spectrum who were in surprising agreement on the problem and the solutions we need to adopt. The panel unanimously supported expanding the current mechanism for resolving insolvency in financial institutions – receivership by the Federal Deposit Insurance Corp., as the Obama administration has proposed.
The panelists all conveyed a sense of urgency that the federal government be given this resolution authority as quickly as possible – the cost to taxpayers would be too high otherwise. The only real question is why former Treasury Secretary Henry Paulson didn’t ask for this authority in March of 2008, when Bear Stearns collapsed.
While our panelists were generally supportive of the proposed Treasury legislation, professor Simon Johnson noted that we should consider including certain protections for workers that are in the bankruptcy code.
The witnesses also raised and were supportive of the need for new prohibitions against predatory practices in financial services, such as large credit card fees or changes in interest rates on existing balances, or exorbitant fees on checking and savings accounts. The Credit Card Bill of Rights, a bill that I introduced, addresses many of these issues and is being voted on the Financial Services Committee tomorrow.
Professor Joseph Stiglitz made a compelling case that we underestimate the positive impact of removing these kinds of predatory practices by only looking at potential reductions in the supply of credit when these practices are prohibited. As he noted, reducing fees and eliminating predatory practices will encourage creditworthy consumers to borrow and to buy goods and services, which will help the economy recover from the current downturn.
The panel also unanimously supported the notion of a Financial Services Product Safety Commission to oversee the safety and soundness of financial products. And I agree, although I believe that it should be located in New York, where there is a concentration of experts on financial services.
--Rep.Carolyn B. Maloney (D-N.Y.), chair of Joint Economic Committee
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