Thursday’s dizzying stock market plunge is a sign that the U.S. financial system still needs serious reform, advocates for tougher regulation of the financial industry say.
The market swoon – the steepest drop in U.S. stocks since the 2008 financial crisis – comes amid a continuing debate over the economic impact of regulations to carry out the Wall Street reform law.
If the Democrats “had anything on the ball they would be hammering away at the notion that it was because of the lack of oversight that the market is crashing,” John Taylor, executive director of the National Community Reinvestment Coalition, told iWatch News.
“The roots of our recession and continuing economic decline are firmly dug into the soil of deregulation. Every day the market drops is an opportunity for those who passed Dodd-Frank to remind people that oversight, accountability and the rule of law matter immensely – we need a free market, free to compete but also free from abuse and unsavory practices,” Taylor said.
GOP critics of the Dodd-Frank financial reform law contend that uncertainty about the effects of hundreds of new regulations are slowing the U.S. economic recovery.
Republican Spencer Bachus of Alabama, chairman of the House Financial Services Committee, has said that the economy is suffering under the weight of a “regulatory tsunami” that is discouraging U.S. banks from loaning money that could help spur investment and create jobs. “We've heard repeatedly how hard it is for small businesses to get loans and this law is certainly playing a role,” Bachus said last week.
The GOP-led committee has approved more than a dozen bills to kill or weaken various sections of the Dodd-Frank reform bill this year. None have advanced in the Democratic-controlled Senate.
Corporate reformers counter that that argument doesn’t stand up, given the soaring profits that American banks and other big companies have been earning. While profits for financial companies have recovered to pre-recession levels, unemployment and other measures indicate that the financial health of average Americans remains precarious, according to Marcus Stanley, policy director for Americans for Financial Reform, a coalition of consumer groups, unions and other organizations that support tougher regulations.
“The difficulty of the recovery is really showing us how important financial reform is,” Stanley said. “The amount of economic damage done by the financial crisis shows just how important it is that we have a system in place for the long run to control the financial sector and make sure it doesn't repeat the kind of excesses that caused this recession.”
Ira Rheingold, executive director of the National Association of Consumer Advocates, a consumer attorneys group, said Thursday’s market problems are another indication that the Federal Reserve’s efforts to keep interest rates low isn’t a cure all. Low mortgage rates haven’t done much to help the U.S. housing market recover, Rheingold said.
Any comprehensive response to the economy’s problems has to include “taking a look at how we are going to solve our foreclosure problem and get the nation’s housing market going again,” Rheingold said. The best hope for this, he said, is a national settlement that would require banks to reduce the amount of mortgage debt held by distressed homeowners.
State and federal officials are negotiating with the five largest mortgage servicers over allegations of widespread fraud and other abuses in the foreclosure process. State attorneys general around the country last year began investigating whether big banks used fraudulent documentation to push through foreclosures.
The nearly 513 point drop in the Dow Jones Industrial Average came two days after the White House approved legislation raising the U.S. debt limit. The sell-off in stocks was triggered by fresh worries about the debt problems facing Italy and Spain, and whether the European Union could afford to rescue them.