Frank Blasts Efforts to Weaken Financial Reform Law
Republican Bills Would Repeal Risk Retention, Weaken Whistleblower Protections
WASHINGTON – Congressman Barney Frank today released the following statement in the wake of the passage on Wednesday evening of two bills in the Capital Markets Subcommittee of the House Financial Services Committee which would eviscerate two important provisions of the Wall Street Reform and Consumer Protection Act.
Congressman Barney Frank today released the following statement in the wake of the passage on Wednesday evening of two bills in the Capital Markets Subcommittee of the House Financial Services Committee which would eviscerate two important provisions of the Wall Street Reform and Consumer Protection Act.
The Private Mortgage Investment Act, introduced by Congressman Scott Garrett (R-NJ), passed the subcommittee by a vote of 18-15, with every Democrat and only one Republican opposing the bill. The legislation would attempt to increase the role of non-government institutions in creating mortgage-backed securities, but it would also repeal the risk-retention provisions of the Wall Street Reform and Consumer Protection Act.
The Whistleblower Improvement Act of 2011 (H.R. 2483), introduced by Congressman Michael Grimm (R-NJ), passed the subcommittee on a strict party-line vote. The bill would cut the heart out of whistleblower protections by increasing the personal risk to whistleblowers, eliminating mandatory and minimum awards, and other provisions.
Both bills would substantially weaken provisions of the 2010 Wall Street Reform and Consumer Protection Act which provide incentives to restrict practices which led to the economic crisis.
On Wednesday, under the leadership of Scott Garrett, Chairman of the Subcommittee on Capital Markets of the House Financial Services Committee, Republicans passed in the subcommittee bills which would roll back two of the most important steps taken to prevent the recurrence of the terrible financial crisis of 2008.
People familiar with the work of Michael Lewis, the author of The Big Short, and Harry Markopolos, the man who tried valiantly to blow the whistle on Bernie Madoff, will be particularly startled to learn that Republicans seek to repudiate provisions in the financial reform law which embody ideas drawn from the work of both men.
The Wall Street Reform and Consumer Protection Act beefed-up protections for whistleblowers and it mandated the SEC to act on them. Incredibly, as Harry Markopolos documents in the attached letter, Representative Garrett and his Republican colleagues are seeking to make it harder for whistleblowers to play any role in detecting financial fraud.
The financial reform law had abolished the practice of transient institutions gathering up loans that had been made in a variety of ways, packing them into securities, and then selling them without any retention of the risk. As Michael Lewis and others have documented, this is a powerful incentive for institutions to make money by making loans to people who may or may not be able to afford them because neither the lender nor the packager of the securities has any interest in whether those loans are paid back. Congressman Garrett’s bill would repeal the provisions of the law which force financial institutions to retain some of the risk in these securities. That is, Republicans want to remove a powerful disincentive for institutions to originate and package bad loans.
It is as if Republicans have developed a case of mass amnesia, forgetting key causes of the financial crisis and thus seeing no reason to preserve laws designed to restrict them. But the financial reform law remains highly popular with the American public. Republican attempts to roll back reform will clearly become a theme of the 2012 Congressional campaigns.
To read the letter by Harry Markopolos, click here.