To ensure the 2009 financial crisis does not repeat itself, the United States should keep financial regulations in place after President Barack Obama leaves office, according to Vice President Joe Biden in a speech in Gaston Hall on Monday.
“On almost every measure, Americans are better off today than they were years ago, but there are still a lot of people being left behind,” Biden said. “It wasn’t an accident. It happened because we made some very tough, very unpopular decisions, and things turned out to be the right call on balance.”
President-elect Donald Trump said during his campaign he would repeal the the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, which introduced a series of regulations designed to prevent a recurrence of the causes that led to the Great Recession.
Paul Volcker, who was chairman of the Federal Reserve under President Ronald Reagan from 1979 to 1987 and chaired Obama’s Economic Recovery Advisory Board from 2009 to 2011, introduced Biden at the event. Volcker characterized the country’s current economy as strong.
“Our performance here in the United States stands out particularly in contrast to the rest of the industrialized world,” Volcker said. “To my mind, it’s very important we have reached the point, we have reached that point of full employment, consistent with reasonable price stability, and the prospect we can maintain that in the months and years ahead.”
However, Biden argued there are still groups of Americans not benefitting from economic growth.
“There’s a lot of people we should be paying attention to, but quite frankly, neither party paid enough attention to. I know every time I talk about it, it’s ‘Middle Class Joe’ again,” Biden said. “But the truth of the matter is, a lot of people got hurt, and many are still not back.”
Biden said many politicians initially underestimated the severity of the recession. Biden said he was often criticized for referring to it as the “Great Recession.”
“Credit markets, credit markets dried up, making it almost impossible for small businesses to keep their doors open and meet payroll. Prospective homeowners to get a mortgage, car buyers to get a loan and right before election day, Lehman Brothers collapsed, unleashing a fear — a real fear — that the whole financial system could collapse,” Biden said.
The unemployment rate hit 10 percent in Oct. 2009, with almost 8.8 million lost jobs, according to the Bureau of Labor Statistics.
Biden said it is important to remember the crisis was caused not by everyday Americans, but by bankers and a lax regulatory system, when looking to develop policy following the election.
“The reason to remember how it happened is not to hold people responsible; particularly, it’s to make sure we don’t commit the same problems again,” Biden said. “It was a direct result of short-sighted, irresponsible, and — I would argue — greedy actions by Wall Street. And Washington’s lacks of regulation over a 20- to 30-year period. Barack and I knew that fixing the real economy meant stabilizing and fixing the financial system.”
America’s regulatory systems were not strong enough to prevent the behaviors resulting in the recession, according to Biden.
“We knew our regulatory system was outdated. Designed decades ago and designed decades ago, it was ill-equipped to monitor the modern-day economy,” Biden said.
The 1999 repeal of the Glass-Steagall Act, a 1933 law that prevented banks with deposits from engaging in the investment business, was a significant contributor to the financial crisis, according to Biden. Many banks made loans they knew consumers could not repay, causing financial problems when consumers were unable to pay back loans.
“Across the board was insufficient regulatory infrastructure. A shadow banking system was allowed to operate with limited oversight — the lack of systematic regulator overseeing the whole system,” Biden said. “Collectively, this wasn’t about allowing banks to take on more risks, it was about shifting the risk from the banks to the governments and taxpayer.”
Biden also shed light on the gravity with which he holds his vote to repeal Glass-Steagall when he served in the Senate.
“This was a debate inside the White House whether I should say this, but I have never not said what I believe, that was the worst vote I ever cast in my entire time in the United States Senate,” Biden said.
Biden emphasized the importance of maintaining proper regulations to ensure a recession does not hit the middle class again.
“I understand, when the middle class does well, everybody does well. The wealthy do very well and the poor have a way out,” Biden said. “It’s what holds together the social contract: a growing middle class.”
The regulations introduced by Dodd-Frank, which have protected the economy for the past few years, are now being taken for granted, according to Biden.
“Let’s at least make sure that the umpire is on the field calling balls and strikes and wearing a striped shirt. That’s why we can’t allow the repeal of Dodd-Frank,” Biden said.
Biden said compensation for company executives must also be more tightly regulated.
“We need to ensure that the executive compensation doesn’t go back to encouraging executive risk-taking, in short term. I’ve spoken a length about stock buybacks by publicly traded companies, how CEOs don’t have the incentive to build for the future, but rather swing for the fences today,” Biden said. “They’re not bad guys or bad women, the processes incentivize actions.”
The government must continue to implement regulations introduced by Dodd-Frank, according to Biden.
“We need to complete the remaining SEC rules created by Dodd Frank, like limits on incentive-based compensation in financial companies. Like Chairman Volcker said, we also need to address the threat posed by a bottomless, short-term debt. And as evidenced by the recent concerns about retail banks, we need to step up our monitoring and enforcement activities,” Biden said. “Look at Wells Fargo.”
Ensuring there is effective regulation should be a common-sense policy for both Democrats and Republicans, according to Biden.
“Millions of families pay the price for reckless and irresponsible policies, and our regulators need to have the resources to catch this activity before it gets out of control,” Biden said. “It’s pretty basic, you know, like me, you don’t have to be an economist to understand this.”
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