- - Monday, April 22, 2019


The degraded state of American politics is never on clearer display than during congressional hearings. Consider the need to inject political non sequiturs with nigh-religious zealotry that was on full display last week at the House Committee on Financial Services hearing called “Holding Megabanks Accountable.” Democrats posturing for hits on social media used this hearing to air their pet projects like climate change and gun control rather than focus on the task at hand.

With so much discussed in this partisan sideshow, the one thing committee members managed to avoid talking about was holding megabanks accountable.

The financial crisis celebrated its 10th birthday last year. In hindsight, it’s easy to see how it happened. With so many bad actors taking advantage of a system run amok, banking regulators and other relevant authorities had limited options to prevent individual firms’ bad behavior from spreading to undermine our broader financial stability. We all hope we’ve learned the lessons from it and that such a disruption will never happen again, which is why we have hearings like this.

Wednesday’s hearing didn’t feed that hope at all.

Rep. Maxine Waters, the California Democrat who chairs the committee, started the hearing on a bad note. She began by attacking banks for the student loan crisis. Embarrassingly, the attending banks had to explain they haven’t financed student loans since the Obama administration nationalized the process in 2010.

Committee members could have gone down a variety of substantive lines of questioning to the assembled representatives of America’s banking industry. The committee didn’t ask if the represented banks had learned the right lessons from the financial crisis. The honest answer for many is probably no, and any response to the contrary would probably make for a good “Big Short” style video someday.

Members didn’t investigate the culture where short-term bonuses incentivize risky, bad behavior and paying fines is just the cost of doing business. They didn’t ask how banks could be trusted if they refuse to honor the contractual commitments they’ve made and breached, forcing counter-parties into protracted and expensive litigation to honor their agreements.

On this front, one particularly missed opportunity came in the form of Bank of America, which has doubled down on its bad behavior in an ongoing, $4 billion lawsuit with bond guarantor Ambac — as I’ve written here before — following BoA’s acquisition of Countrywide Financial in 2008.

Bank of America has paid tens of billions dollars for Countrywide’s malfeasance in originating and selling mortgage loans to investors. BoA CEO Brian T. Moynihan was in attendance at the hearing. Wouldn’t it have been productive for members of Congress to ask him when his bank acquired Countrywide in 2008, did it understand the extent of Countrywide’s malfeasance?

Instead, they did like Rep. Rashida Tlaib of Michigan and said “I’ll say that you are greenwashing your own track record and duping the American people into believing that you are helping address climate change. On the record, will any of your banks make a commitment to phase out your investments in fossil fuels and dirty energy?”

Rather than grandstanding about global warming, representatives could have held his feet to the fire. Despite the overwhelming evidence of pervasive fraud by Countrywide — and BoA’s own admission of it — no senior executives at Countrywide were criminally prosecuted for their roles in connection with this fraud. Does this send a message to the broader world of high finance that bad actors have learned their lesson?

The economic boom of the last two years has benefited everyone. With record for shattering records has been a testament to conservative principles of lowering taxes and decreasing regulation, but we do have to be on guard against future large-scale problems if the financial industry isn’t held in check. Bad actors will take advantage of a lacuna of appropriate oversight. Appropriate guard rails can prevent both another crisis or the implementation of invasive, Elizabeth Warren-style regulation — either of which could have devastating consequences for the real economy.

The House financial services committee had a terrific opportunity last Wednesday to explore substantive bipartisan solutions. To continue powering our economy, the financial industry needs guard rails, not massive obstruction nor totally free rein. This was a wasted opportunity.

• Jared Whitley has worked in the U.S. Senate, the Bush White House and the defense industry. He is principal of Whitley Political Media, LLC.

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