Freshman Dem Jackie Speier

Freshman Democratic member of the House Financial Services Committee, Jackie Speier, understands the financial mess we got into, and she has just done something amazing about it -- although we shouldn't have to be amazed because it is the logical, reasonable thing to do.

She introduced an amendment to the regulatory bill under committee consideration that would require that banks not lend out or invest more than 12 dollars for every dollar they keep in reserve. The big guys that failed so miserably, like Bear Sterns, Merrill, and Lehman, were all leveraged at 30-1. And that's why they failed so dramatically. They didn't have the reserve when it all collapsed.

As reported by Ryan Grim on Huffington Post, Speier's amendment was considered a long shot that at best would get a roll call vote, requiring Republicans and bank-friendly Democrats to go on record with their opposition. Then it would be soundly defeated. But Grim writes:

It wouldn't be a novel idea. Until 2004, the Securities and Exchange Commission limited leverage ratios to 12 to one. Speier's cap would only re-apply a cap to financial institutions deemed to be a risk to the overall financial system.

But in 2004, the SEC caved in to pressure from banks to let them use much more of their reserves, and exemptions to the limits were granted to the larger banks, justified by the fact that they were large and had huge reserves. One lone, dissenting commissioner, Harvey J. Goldschmid, presciently warned that because they are the big guys, "that means if anything goes wrong, it's going to be an awfully big mess." It did go wrong, and it was an awfully big mess.

Here's what happened in the committee Thursday. During the all-day hearings, Speier's amendment came up when only a few members were in the room. One Republican asked for a roll call vote, and then quickly withdrew the request, and the amendment passed on a unanimous voice vote. Of course the amended bill still has to be passed by the full committee. Will bank-friendly congressmen go on record in opposition to changing something that so obviously contributed to the huge banking failures of 2008-09?

Speier hits the nail on the head.

There's a pattern here. We put these good laws in place, whether it's Glass-Steagall or, in that case the SEC cap. But then the industry comes to us and says, 'Oh, this is cramping our style. We could make' -- of course they don't say it this way -- 'we could make so much more money if you just lifted this cap.' And they were right. They made a lot of money and they also brought the entire country to its knees.

It was written two thousands years ago: "The love of money is the root of all evil."

Ralph