Last week, the U.S. House of Representatives voted to repeal stringent Wall Street regulations included in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Immediately after his election in November of last year, President Trump pledged to repeal Dodd-Frank in its entirety. It appears as though the President and Congress have forgotten the Great Recession – the global financial crisis that spurred the bill’s creation in 2010.
The story of the Great Recession is one of reckless banks, Wall Street financial firms, and hedge-fund managers who crashed the world economy in 2008. Sub-prime mortgages, credit default swaps, and other Wall Street-imagined products swindled American families out of their homes and their retirement savings.
As a result of reckless greed on Wall Street, the Great Recession wiped out the retirement savings of many Americans. The 2015 film The Big Short summarized the calamity:
“Banks took the money the American people gave them and they used it to pay themselves huge bonuses and lobby the Congress to kill big reform. And then they blamed immigrants and poor people, and this time even teachers.”
While pension funds lost $889 billion and regular American families lost $11 trillion, one hedge-fund manager- John Paulson- made $20 billion for his investors and $4 billion for himself with the crash of 2008.
After driving state and local budgets into the tank, along with the rest of the economy, Wall Street bankers looked for someone else to blame for the flailing economies across our country. The targets they settled on? People who educate children, protect communities, and save lives. They decided these Americans and their pensions, not Wall Street, were to blame for the woes of state and local government financing.
Pensions experienced long-term success before the financial collapse and are clearly rebounding today. The aggregate funding level of state and local pension systems was 103 percent in 2001. By 2013, after market downturns in 2000-2002 and the crash of 2008-9, aggregate funding levels had fallen to 72 percent. 2014 was the first time post-recession that pension systems started to rebound, with aggregate funding levels ticking back up to 74 percent. The Center for Retirement Research (CRR) at Boston College predicts that funding levels will continue to improve, depending on the uncertain performance of the financial markets.
If someone was lucky enough to have a public pension when the market crashed, a dignified retirement is still possible thanks to the fundamental structure of a pension. Assets are pooled collectively and risks are shared between the employer and the employees. This means workers can continue to retire and receive their promised benefits while the pension fund recovers its losses over the next ten, twenty, or thirty years, as CRR shows funds are doing now.
Meanwhile, if an employee’s assets were in a 401(k) when Wall Street bankers brought our country to the brink of financial collapse, they might have ended up with nothing. Some people were forced out of retirement. Others had to work five or ten years longer than they had planned. Some people were able to recover their savings, but many weren’t.
This should come as a surprise to no one. The 401(k) was designed to only benefit millionaires and billionaires who have the money to gamble on Wall Street. The teacher, social worker, and police officer’s fixed income does not generate the capital to win big in the stock market, leaving them with little or no savings to rely on when leaving the workforce—with or without financial crisis.
The lesson America learned is that shady financial schemes and little to no oversight led to economic ruin. After years of reckless behavior by bankers and brokers—as Ryan Gosling’s character in The Big Short says, “only one single banker went to jail”— taxpaying families were left to pick up the pieces.
In response to the Great Recession, the Obama administration passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 – a comprehensive financial reform bill that aimed to reduce risk in the financial industry through regulation. The legislation works to prevent future crises and ensures that no company will once again be ‘too big to fail’.
Our elected officials owe the American people the same protections afforded to Wall Street–and that means ensuring everyone’s nest egg is safe. If more people can retire with dignity, our economy will be stronger and taxpayers will be protected. Repealing Dodd-Frank would not only jeopardize the stability and security of the financial system, but once again put the retirement security of Americans at risk.