Prevent another crash, reform Wall Street

Seven years after the Wall Street meltdown, Americans are still experiencing the fallout.

Although job creation rates and GDP — along with bank bonuses and corporate profits — are on the upswing, these statistics mask the lingering hardship of millions of families that traces back to Wall Street’s reckless behavior. One study found that the crash cost every American $120,000.

We were forced to save our economy by bailing out big banks. Now, we have a responsibility to correct the mistakes of our more recent past to prevent another crash.

To do that, we must acknowledge that — while it addressed inherent flaws in the financial system — the 2010 Dodd-Frank Act did not go far enough.

The most serious structural reform we can make is reinstating the 1933 Glass-Steagall Act that kept commercial banks separate from investment banks. Under Glass-Steagall, our country did not see a major financial crisis for nearly 70 years. If that law hadn’t been repealed in 1999, the crash would have been contained.

The largest banks should be broken up into more manageable institutions. Today, five banks control half of the financial industry’s $15 trillion in assets. Even members of Congress, several Federal Reserve Board governors, and major players in the financial industry are recognizing that institutions that are too big to fail are too big to succeed.

Structural reforms aren’t enough. We must bring fundamental change to the culture of Wall Street, beginning with real accountability. To this day, the Justice Department and financial regulators have done virtually nothing to bring criminal charges or hold leadership accountable. Legal deterrents are critical for improving the culture of Wall Street and showing that fraudulent behavior will be punished.

We can solve this problem in a few ways. The first is to replace the leadership at banks that are repeat offenders. CEOs should not remain in charge of institutions that they have failed to manage properly.

Second, we must appoint people to positions — attorney general and SEC chair for starters — who will prosecute those who commit or permit crimes. Thus far, settlements have been nothing more than CEOs using shareholder money to buy their way out of jail.

Third, we must end the days of “neither admit nor deny,” and force law-breaking banks to publicly admit it. We have allowed big banks to avoid admitting guilt due to claims that it will cause them too much harm — it’s time to end that game and let banks face the legal consequences and harm to their reputation.

Fourth, we must make banks bear the full weight of financial penalties. As unbelievable as it sounds, the worst actors on Wall Street have written off large portions of these penalties — as if they were donations to charity. We should not allow banks to deduct fines from their taxes.

Finally, we need a “three strikes and you’re out” or a points-accrual policy — like the one drivers face — to revoke a bank’s right to operate if they repeatedly break the law. This would increase transparency, reduce recidivism and put banks out of business if they repeatedly disregard the law.

Unfortunately, while many good people who work in finance and in Congress understand our vulnerability to another crash, further reform faces an uphill climb against powerful special interests.

Today, most Republicans in Congress are hell-bent on disassembling the Dodd-Frank Act. And too many Democrats have been complicit in the backslide toward less regulation. All while last year’s Wall Street bonuses were double the total earnings of all full-time workers making minimum wage.

It’s time to put the national interest before the interests of Wall Street.

The future of our economy — and America’s middle class — depends on it.

FORMER GOV. MARTIN O’MALLEY of Maryland is a possible Democratic candidate for president. Contact: info@martinomalley.com