The Democrats’ latest “financial reform” bill is a massive power grab that does nothing to actually solve the problems that led to last year’s financial collapse. The current recession is a direct product of government intervention, as it began with regulators threatening banks with fines and litigation if they refused to give loans to poor people that couldn’t afford them. These sub-prime mortgages were bundled into mortgage backed securities by Fannie Mae and Freddie Mac, government sponsored entities tasked with expanding the sub-prime mortgage market. The government manipulated the free market through regulation, created perverse incentives that drove banks into risky behavior they would have otherwise avoided and then bailed out banks that ought to have failed for their irresponsible actions. Yet the same liberal regulators who created the economic meltdown now insist that future disasters and bailouts will be prevented if only the federal government is given more authority to regulate Wall Street. Their strategy to enact financial reform appears to rely on short memories.

Rather than liberating market from federal mandates, the Democrats’ financial reform legislation introduces a slew of destructive regulations. It empowers the Federal Reserve to regulate bank holding companies with over $50 billion in assets, and it institutes a “systemic risk council” through the Treasury Department that will determine when an institution has become too big to fail and dismantle it. However considering the fact that the government is still involved in promoting unaffordable mortgages to poor minorities, what will prevent regulators from encouraging banks to engage in further impropriety in the housing market?

The most foolish aspect of the new legislation is the introduction of regulations on derivatives, the financial instrument used by companies like AIG to insure mortgage backed securities. While derivatives were instrumental in the spreading of toxic assets throughout the economy, their existence was directly tied to the sub-prime loan market. The derivatives created by AIG were dangerous only insofar as they were insuring the government’s dangerous creations. To institute new regulations on derivatives is to ignore the government’s abuse of power in the mortgage market while simultaneously giving it even more power it doesn’t deserve.

The Democrats were not only culpable in the financial meltdown and the recession that followed, they are now propagating the lie that Wall Street and unregulated greed created financial disaster. The government’s housing policies created the problem, their massive bailouts covered up the problem and the government’s new powers are bound to create even more problems in the future. If the American people truly desire to avoid future catastrophe, we must resist the Left’s populist rhetoric and oppose the government’s attempt to further control the financial sector.