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Government response to financial crisis must include fundamental structural reforms; Oversight, re-regulation, and means of returning lost revenue to treasury are needed
Friends of the Earth announced its opposition to the Bush administration’s proposed trillion-dollar bailout of the financial system today, and called on elected officials to ensure that any government action related to the financial crisis fixes deep structural flaws in the financial system that have spawned not only the current financial crisis but are also jeopardizing our planet’s future.
Friends of the Earth President Brent Blackwelder had the following statement:
“This financial crisis has exposed the right-wing’s anti-regulation philosophy as an abject failure. Their hands-off approach to managing the economy has resulted in greedy corporate titans getting rich on the backs of working people. This same philosophy is causing irreparable harm to the planet. And now we face a trillion-dollar taxpayer-funded bailout. Enough is enough.
“Friends of the Earth opposes the Bush administration’s proposed blank-check bailout for these wealthy financiers. What is needed is truly fundamental reform, not this no-strings-attached proposal. The government must impose oversight and re-regulation on the financial system. The days of the fox guarding the henhouse, with corporate lobbyists writing the laws that regulate their industries, must end. And we must consider environmental impacts to be economic impacts as we move forward. While the risks posed to the economy by the current financial crisis are indeed dire, we also face long-term risks posed by the climate crisis. These problems are intertwined, and reforms of the financial system must take this into account.
“Reform must be conducted in a just way that helps people on Main Street more than it helps corporate fat cats on Wall Street. Taxpayer funds taken from the treasury to prop up Wall Street must be replaced so they can be used to fund other necessary initiatives.
“It’s ironic that when many countries run into financial trouble, the International Monetary Fund imposes serious economic restructuring, but President Bush and Secretary Paulson now see no need for restructuring at all. They’re wrong, and their proposal should be rejected."
This unprecedented bailout not only imposes a hefty monetary cost on taxpayers and future generations, but it represents enormous opportunity costs. In response, Friends of the Earth is calling on Congress to consider the following specific reforms, which adhere to the principles stated above:
Any bailout package should be just.
- Financial institutions should bear the brunt of the losses from this crisis; taxpayer monies should be used to only cover the bare minimum to keep our banking system functional.
- The government should acquire an ownership stake in the institutions that are bailed out.
- Bailing out Wall Street banks without making proportionate efforts to keep American families in their homes is unfair. Friends of the Earth supports organizations such as the Center for Responsible Lending, National Community Reinvestment Coalition and the National Council on Civil Rights, who are advocating Chapter 13 judicial modification relief to keep homeowners from losing their homes.
- In addition, failing to hold executives accountable for the disastrous consequences of their actions is unconscionable; those who were responsible should be persecuted to the full extent of the law. In the future, fines and penalties for financial and corporate malfeasance must be increased, and executive compensation must be reigned in at all companies that are being bailed out.
Any bailout package must be tied to a restoration of regulation and supervision of the financial services industry.
- Decades of deregulation have allowed this industry to “innovate” new financial products, structures, and vehicles at an astonishing rate without monitoring and supervision. Friends of the Earth supports the call from Center for Economic and Policy Research to require tradable instruments, such as credit default swaps, to be standardized and traded on exchanges, which would subject them to regulation and transparency.
- Now is the time to ensure proper oversight over the financial services sector, and tighten up rules on accounting and offshore tax havens which allow clever financial engineering to hide real risks and liabilities. It is time to bring hedge funds under supervision; and no hedge funds (which have refused to even register with the SEC) should be bailed out.
- This is the time to reinstate the Glass-Steagall Act, which regulated the banking and investment industries after the Great Depression. The repeal of the act in 1999 paved the way for massive overleveraging among financial institutions, increased the risk of conflicts of interest, and put consumers real savings at risk.
Any bailout package should include measures to cool down speculative hot money flows and asset bubbles.
- The Fed should take on a new role of proactively preventing asset bubbles, and take measures to cool down overheating parts of the financial markets.
- As Friends of the Earth has proposed since 1995, a Tobin-style tax (for example, 0.25 percent tax on stock trading, and 0.02 percent tax on options, futures, swaps, and currency trading) should be introduced to curb excessive speculation and promote longer-term investing that serves the real economy. Tobin-style tax revenue could be used to help pay for the bailout and address critical social and environmental needs.
Government-owned financial institutions have the ability and responsibility to foster an environmentally sound future.
- AIG, as it becomes a federally controlled entity, should cease underwriting fossil fuel energy projects and focus on facilitating a clean energy transformation. The same principle should apply to other new federal entities that are created via this bail out. The National Environmental Policy Act should apply to such entities.
- In the future, Fannie Mae and Freddie Mac should institute a policy to require an increasing percentage of the mortgages they purchase to be “green” (location efficient, energy efficient, and/or sustainably designed). It should phase out purchasing mortgages for development in flood plains and coastal hazard zones.
Friends of the Earth (foe.org) is the U.S. voice of the world’s largest grassroots environmental network, with member groups in 70 countries. Since 1969, Friends of the Earth has been at the forefront of high-profile efforts to create a more healthy, just world.