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Tim Johnson and Financial Services

Two weeks ago, as stocks tumbled and a sense of malaise set in nation-wide, Congress scrambled to get together a plan aimed at avoiding a complete economic meltdown. The gentleman from Illinois’ 15th district delivered a rebuke to Washington’s power brokers by casting a “nay” vote on the initial financial bailout package, which failed to clear the House. However, the sweeteners thrown into the revised package weren’t enough to keep Rep. Tim Johnson from casting another “nay” vote.

A statement released by Johnson criticized the bailout plan as unfair to taxpayers in monetary cost and principle. In the same statement he also claimed to have argued for greater regulation of Fannie Mae and Freddie Mac in the past.

However, Johnson hasn’t always been at the forefront of demanding accountability from the country’s financial overlords. A look at his record reveals that the downstate congressman is not quite a Cassandra. Like many a member of Congress, Johnson has not sponsored any legislation creating more government oversight of the financial services sector, and this reporter couldn’t find any strong statements from Johnson warning that a crises was imminent unless Congress reeled in the excesses of Wall Street.

Congress has been sharply criticized for sitting on its collective hands while the greed and hubris of modern-day robber barons drove the economy into a deep ditch. For years, members of Congress have accepted heaping sums of money from the financial sector, according to an analysis by the Center for Responsive Politics. Johnson is no exception. He has pocketed about $48,000 in campaign contributions from securities and investments interests over the course of his career.

For years, the government has passed on oversight duties to private credit rating agencies, which study the business practices of companies and then advise investors (for a fee) on the soundness of putting money into their stocks. The logic of this approach holds that the private sector would do a better job of providing oversight than any sluggishly bureaucratic government agency. However, on the eve of the collapse of Enron and WorldCom, many of these agencies gave both companies high marks and failed to cry foul as they sowed the seeds of their own destruction (and employees and shareholders).

About the closest thing the House has done to bring more oversight to the financial services sector is the Credit Rating Agency Duopoly Relief Act of 2006, which Johnson voted for.

The legislation sought to avoid another Enron-WorldCom debacle by generating competition among credit rating agencies in hopes that enough of them would blow the whistle on the questionable business practices of companies on the road to ruin. When the bill was debated in Congress a number of representatives argued that while the legislation would bring more credit rating agencies into the fold, it didn’t insure that any of them would actually provide useful or reliable information. Several members of Congress argued that some agencies might make money by telling investors what they wanted to hear, and others might drum up business by claiming that the financial sky was falling.

However, the bill never made it through the Senate, so we won’t know how well this would have worked.

Another bill worth mentioning that Johnson cast an affirmative vote on is the Financial Services Regulatory Relief Act of 2003. The bill was designed to lift regulations on the banking industry.

Interestingly, during a hearing regarding the bill Rep. Bernie Sanders pointed out that the banking industry had undergone considerable consolidation, which would likely be hastened if the bill became law. He went on to make this chillingly prophetic remark:

“I am very concerned that as a result of these mergers an increasing number of banks are considered too big to sale. In other words, these banks are now so big that if they should get into trouble it will be the American taxpayer who will have to bail them out because the argument will be made that the consequences of those failures are so great for our economy that the taxpayers of this country must bail them out.”

However, the bill never became law either.

But one bill that Johnson gave the nod to did become law and might be putting the squeeze on people hard hit in these financially tumultuous times. The Bankruptcy Reform Act of 2005 has been heavily criticized for provisions making it more difficult for people to file bankruptcy, and has been called a “gift” to the credit card companies.

But Johnson isn’t quite ready to throw everyone out into the cold. The Congressman has voted to extend unemployment benefits.

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