Economic Growth/Jobs AND Financial Stability/Security 

Last week Better Markets participated in a conference hosted by its partner and sister organization Finance Watch in Brussels. President and CEO Dennis Kelleher delivered a speech that outlined the challenges facing financial reform advocates and reminded the audience of why financial reform is not only crucial to global economic prosperity and stability, but a necessary condition for achieving those goals. Echoing a speech by Better Market’s Senior Fellow Bob Jenkins when he was at the Bank of England’s Financial Policy Committee, a key focus of Mr. Kelleher’s speech was countering the false choice that society must choose between economic growth and financial stability. The handful of dangerous too-big-to-fail Wall Street banks have long opposed regulation by stoking the fear that it will unfairly burden banks and brokers, hinder capital formation and credit availability, and thereby slow economic growth. But as Mr. Kelleher’s speech details, nearly a century of history shows that just the opposite is true.

In the midst of the Great Depression of the 1930s, following the Great Crash of 1929, Congress adopted a series of major structural and regulatory financial reforms embodied in numerous banking and securities laws. What followed – for about 70 years – was a thriving financial services industry, robust financial market growth, and widespread prosperity-an era known as the “Golden Age of Capitalism.” However, de-regulation became increasingly popular in the 1980s and 90s, culminating in the repeal of the Glass Steagall Act in 1998 and the Commodity Futures Modernization Act in 2000 that prohibited the regulation of derivatives.  This led directly to the 2008 financial crisis, the greatest financial catastrophe since the great depression. The financial crash and economic wreckage it caused is going to cost the US more than $12.8 trillion in loss to GDP and millions of people’s jobs, homes, and livelihoods.

Thus, about 70 years of stability, growth, and security under the heaviest regulation of the financial industry in history followed by just 7 years of virtually total de-regulation leading to the biggest financial crash since 1929 and almost causing a second Great Depression. The evidence is clear: Financial stability and security leads to greater economic growth and broadly shared prosperity, whereas de-regulation leads to crisis, huge losses in productivity, and massive human suffering.

This week, however, the SEC took a big step backward by granting a virtually free and clear waiver to Oppenheimer, which settled a $20 million enforcement action for violations relating to penny stock transactions, anti-money-laundering provisions, and unregistered brokerage activity. SEC Commissioners Stein and Aguilar filed a strong joint dissent against the waiver. They cited numerous problems with the waiver: it lacks meaningful provisions to ensure the independence of the monitor responsible for overseeing Oppenheimer’s compliance; it does not require oversight by top-level management; and it imposes no requirement that Oppenheimer return to the SEC after an interim period to show that the waiver continues to be warranted. In fact, citing Oppenheimer’s long history of violations and its “wholly failed compliance culture,” Commissioners Stein and Aguilar questioned whether any waiver – let alone one with weak conditions – was appropriate.We hope this recent waiver is an anomaly, and that the SEC takes far more seriously its obligation to carefully and thoughtfully determine whether such waivers are appropriate, and if so, under what conditions.