Massachusetts Needs Its Own Financial Reform

The following opinion piece was submitted by Matt Benedetti, a Democratic candidate for state representative in the 10th Suffolk District, which includes precincts 14, 15 and 16 in Brookline.

In Washington D.C., the Congressional House Committee on Oversight and Governmental Reform is demanding a review of the mortgage crisis that triggered the economic meltdown that shook the financial foundation of our country.

The probe centers primarily on Angelo Mozzillo, the founder of Countrywide, the nations' largest mortgage lender, with a portfolio at one point of $1.4 trillion. This staggering wealth was accumulated by selling billions in mostly subprime loans to Fannie Mae and Freddy Mac in an effort to adhere to the Community Reinvestment Act. This act was designed to encourage and pressure banks to make loans to the "underserved." Among other transgressions, he is being accused of offering "VIP" loans to Senators and their staff members who decided what loans these institutions would purchase with taxpayer money.

Ultimately, many borrowers simply could not keep up the payments and defaulted on their loans. Fannie and Freddy are responsible for $5.5 trillion worth of defaulted mortgages.

Along with the implosion of the complex financial product, "credit derivatives" chronicled so well in Gillian Tett's book "Fool's Gold," as well as a myriad of other factors, it was a perfect storm for a fiduciary calamity.

Where were the protections and safeguards for consumers and taxpayers? Stripped away over many years in an effort to allow financial institutions and mortgage companies greater flexibility resulting in a wider profit margin.

After 12 lobby attempts in 25 years, the last firewall – the Glass-Steagall Act – was dismantled in 1999. This last vestige of the Great Depression era safeguards protected bank depositors from additional risks associated with security transactions.  Subsequently, the distinction between commercial banks and brokerage firms became blurred. Today several banks own brokerage firms and provide investment services. Countrywide and the United States essentially became partners in a reckless and unregulated subprime mortgage operation.

The aftershocks of the mortgage crisis on Wall Street are still being felt on Main Street. The colossal tax payer-funded bank bailouts have yet to produce the promised result – an improved economy. Profit-driven policy on Wall Street is not necessarily good for the country. These titans were gambling with someone else's money – ours.

I propose that Massachusetts enact our own Glass-Steagall Act to provide a secure environment for our consumers. I recognize that federal banking regulations have been tightened since the subprime mortgage collapse, but the horse has left the barn.

Massachusetts needs to have an enhanced set of regulations to shield our residents from the next inevitable frenzy of Wall Street avarice.

– Matt Benedetti