A brighter future for financial reform

It’s tough being a banker these days.  Everyone from Sarah Palin to Barack Obama is using bankers as punching bags in the national media, and bankers, bonuses and bailouts seem to have become the three most important words in American politics.  Wall Street executives have sunk below politicians and lawyers in the eyes of Americans, and college graduates are viewing teaching and the Peace Corp as more attractive options to jobs in finance for the first time in decades.

Politicians, of course, are going to go with the message that works – regardless of what side of any debate they find themselves on.  And the message that works these days seems to be that banks are solely responsible for the financial crisis and our economic ills.  I don’t buy it. 

Yes, the financial industry bears a great deal of responsibility for what has happened to the economy.  But we got here because businesses, government and individuals all avoided making hard choices over the last two decades.  We collectively took the easy way out and rarely thought beyond the next quarter’s bonus, the next election cycle or the next paycheck in making our decisions.

Instead of earning and saving, individuals, businesses and governments have borrowed and spent for years, and now it’s payback time. Banks happily played the role of enabler during this borrowing spree.  They lent money relentlessly and concocted complex derivatives and other gimmicks that we could use to fool ourselves into thinking we weren’t really going so deep into hock. But they weren’t alone in culpability.

What’s more, despite all the political harping about bailouts, the vast majority of banks didn’t want or need a bailout.  And the fact is that many institutions have already paid back what they owe to taxpayers. 

While I don’t think the industry should be blamed so much for the past, I do think the industry is responsible for what it is doing in the present with regard to fighting against meaningful financial reform and reasonable protections for American consumers.

The American people are fuming at banks not so much over bonuses and bailouts in the past but because of the belligerence that they are showing now.  Instead of being part of the solution to solving the economic crisis, bank executives have decided to remain part of the problem.

In the days following the administration’s proposals for financial regulatory reform last June, bank lobbyists and association executives went to every corner of the national media and shouted to Congress and the American people that they would fight financial reform – and they would fight to the death against any substantive changes in the laws to offer ordinary Americans the same kinds of protections for financial products that consumers have for autos or drugs.  Since then, they have relentlessly reinforced that mantra with money, lobbying and media campaigns. In so doing, they created a nightmare for the banking industry that may take decades to fix.

Study after study has shown that when industries are threatened, executives almost always make poor decisions by focusing on short term profits and ignoring the long term implications of their actions – the auto industry is but one example.  The anger of the American people at banks will become far greater if the banks do not sincerely and meaningfully participate in helping to fix a regulatory system that is clearly broken. If the industry manages to defeat meaningful financial reform this year, the long term consequences for the industry will be disasterous. 

Along with the banks, politicians are performing a dangerous calculus.  Betting that they can take money from the financial industry, vote against financial reform and tell voters they are fighting to fix the economy won’t work. And the American people are going to see through clever phrases and sound bites about safety and soundness and big government. You just can’t fool all of the people all of the time – especially in a down economy.

Senator Bob Corker and Bank of America CEO Brian Moynihan have made notable statements in the last week that indicate a willingness to put our country ahead of narrow political interests and short term financial gain.  If their statements are sincere and they follow up with action to match their words, they will prove themselves to be the kind of leaders we need in government and industry to move this country forward.  Let’s keep our fingers crossed that they will be joined by others willing to fight for meaningful financial regulatory reform.

Duncan is the Chairman of American Business Leaders for Financial Reform and has more than 20 years experience as an entrepreneur, CEO, attorney and investor in the fields of corporate finance, investment management and technology.