By Lisa M. Goolik, J.D.
In a speech last week, former Texas Gov. and Republican presidential candidate Rick Perry warned the nation that another financial crisis is on the horizon and wondered if we had learned anything from the last financial crisis. Perry presented his agenda for Wall Street, advocating undoing much of the Dodd-Frank Act and possibly reinstituting activity limits comparable to those of the Glass-Steagall Act. Perry also made clear his belief that failing banks never should be bailed out by the federal government.
"Wall Street should not be let off the hook for its bad behavior. Banks made a lot of mistakes regarding risk management leading up to the crisis. Some financiers intentionally misled investors and customers. They pushed people into deceptive financial products," said Perry.
Dodd-Frank criticisms. Perry called for substantial changes to many Dodd-Frank provisions, although he did not go so far as to suggest the act should be repealed. According to Perry, the Dodd-Frank Act did not address the cause of the crisis, which Perry believes should be attributed to the affordable housing policies of the Clinton and Bush Administrations.
"Once the smoke cleared, Congress misdiagnosed the problem, passed the wrong remedy, and actually made things worse," said Perry. Rather, Perry suggested that Fannie Mae and Freddie Mac be ended and for their activities to be managed more conservatively, with higher down payments on loans and higher GSE capital requirements, while that process is completed.
Consumer Financial Protection Bureau. Perry did not advocate the elimination of the Consumer Financial Protection Bureau. He did, however, echo complaints that it is too powerful and unaccountable. Perry would address these complaints by changing the bureau’s leadership structure and subjecting it to the congressional appropriations process.
Ending TBTF. Perry also pushed Washington to end “too big to fail,” stating, "we need to restore market forces to banking, where failure is not rewarded or bailed out."
A “fact sheet” released at the time of the speech included several steps that could be taken toward that goal:
- The recent Federal Reserve Board rule requiring global systemically important banks to hold higher levels of capital based on their risk could be strengthened.
- The Dodd-Frank orderly liquidation authority could be replaced with a bankruptcy process that would apply to financial institutions of all sizes.
- Banks could be required to separate traditional banking activities from investment activities—as Glass-Steagall required—or they could be required to hold extra capital against their trading activities.
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