By Bruce Edwards, Herald Staff
Vermont's congressional delegation weighed in Tuesday on the crisis that has rocked the financial markets, with Sen. Bernard Sanders, I-Vt., calling for a return to greater regulation and oversight of the financial services industry.
Sanders said the seeds of the current financial turmoil were sown nearly 10 years ago with the passage of the Gramm-Leach-Bliley Act.
He said the law effectively set aside the Glass-Steagall Act, which was enacted 75 years ago during the Depression and set up firewalls to keep commercial banks from owning investment banks and vice versa.
At the time Gramm-Leach-Bliley was working its way through Congress, Sanders, then a member of the House, warned that the legislation "will do more harm than good" and lead to fewer banks and financial service providers, result in increased fees, diminish credit for consumers and small businesses and increase taxpayer exposure in the event financial institutions fail.
Sanders drew a connection between the problems besetting Wall Street today and the soaring cost and volatility in the energy markets.
With the help of Republicans in Congress and some Democrats, Sanders said the country has moved toward greater and greater deregulation.
"What that means is that we have said there really isn't going to be transparency either in financial services or in energy trading," Sanders said. "Large corporations can do whatever they want and the consumer be damned."
Sen. Patrick Leahy, D-Vt., took the Bush administration to task for what he called its irresponsible economic and fiscal policies.
"They include incompetence in White House appointments to regulatory agencies that are supposed to be the public's on-the-scene watchdogs; squandering faith in market mechanisms by winking at increasing signs of excess and corner-cutting by rich and powerful corporations; and indifference to the widening gap between the super-rich and ordinary Americans, and to the lack of affordable housing," Leahy said in a statement.
Sanders pointed out that former Texas Sen. Phil Gramm was a co-author of the 1999 financial services law and was also responsible for the creation of the Enron loophole. Gramm recently stepped aside as Republican presidential nominee John McCain's chief economic adviser.
The Enron loophole is so named because it took away regulatory oversight of the energy trading market. Critics have blamed the loophole for speculation in energy trading which in turn has driven up oil prices. A bill that that passed earlier this year partially closed the loophole.
Sanders said the time is long overdue to reinstitute sensible regulation of the financial services and energy sectors.
A spokesman for the American Bankers Association declined to directly address Sanders' criticism of Gramm-Leach-Bliley. However, Peter Garuccio said that revisiting the financial services sector was already on Congress' agenda prior to this week's problems that engulfed Lehman Brothers and Merrill Lynch.
"I think that policy makers on Capitol Hill have had regulatory restructuring on their agenda since before Lehman Brothers and some of these others," Garuccio said, "and I think that this just brings that agenda item into sharper focus and bring it up a notch."
He added that the ABA is "willing to work with members from both sides of the aisle to craft workable solutions."
In a related development, Rep. Peter Welch, D-Vt., introduced legislation to prevent the former chief executives of Fannie Mae and Freddie Mac from receiving as much as $25 million in severance pay unless authorized by Congress.
According to Welch, the bill was first suggested by a Rutland man. Since then, his office has received similar suggestions from several other Vermonters.
The Federal Housing Finance Agency last week seized control of the failing mortgage companies and removed their CEOs.
Welch said former Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron could receive as much as $9.8 million and $14.9 million in severance pay, respectively.
"After bailing out these companies, it's unconscionable to stick taxpayers with the bill for golden parachutes that reward complete failure," Welch said in a statement. "They simply don't deserve a $25 million parting gift from taxpayers."
The FHFA announced it intends to eliminate the severance payments but Welch said Congress still needs to act on its own.
"It's welcome news that the administration plans to limit severance payments," said Welch, who led the push to close the Enron loophole. "But Congress must act to protect taxpayers if they fail to follow through."
By Bruce Edwards, Herald Staff
You might also like:
The news about troubled financial firms that slammed the stock market Monday is one more exhibit in an already strong case for aggressive ov...
By Joan LowyWASHINGTON (AP) - The Bush administration and Senate Democrats clashed Wednesday over whether the nation's bridges are in a stat...