President Obama called on Congress today to pass financial regulatory reform, arguing that new laws are required to ensure that American taxpayers never again face the choice of either funding a bank bailout or plunging into an economic crisis.
The reform is needed, he said, because the existing system of risks and rewards is broken.
"If there's one lesson that we've learned, it's that an unfettered market where people take huge risks and expect taxpayers to bail them out when things go sour is simply not acceptable," Obama said.
Regulating banks is no simple task. Big banks are complicated and vast, with tentacles that stretch all over the world, offering countless types of financial products -- credit cards, investments, business loans, student loans, real estate, financing and securities, to name a few.
These financial behemoths take big risks that can earn big profits for stockholders and executives. But who pays for that risk-taking if they fall through?
JP Morgan Chase today posted a net income of $3.3 billion, just for the first three months of this year. That's a 57 percent increase over its net income from this time a year ago.
Two years ago, Chase took a $25 billion taxpayer bailout, which it has since paid back.
Democrats are pushing for new financial regulations, which the president says will prevent a bank bailout from happening again in the future. Republican leaders say the bill will achieve exactly the opposite.
"It is a bill that actually guarantees future bailouts of Wall Street banks," Senate Minority Leader Mitch McConnell of Kentucky said.
Democrats call the Republicans' response obstructionism, saying they are parroting talking points generated by GOP strategists.
As evidence today, Sen. Chris Dodd, D-Conn., the chairman of the Senate Banking Committee, quoted from a memo circulated by Republican message guru Frank Luntz.
"Let me quote the partisan memo: 'The single best way to kill this legislation is to link it to the big bank bailout,'" Dodd said.
What exactly would the financial reform legislation accomplish?
First, it creates a new consumer protection agency with the power to stop abusive practices by the financial industry, including sudden credit card interest rate hikes, hidden bank fees and predatory loans.
The bill is also supposed to prevent future bailouts by giving the Treasury Department power to force failing banks into bankruptcy. It would create a $50 billion fund, financed by the banks themselves, to cover the bankruptcies.
Republicans say that a $50 billion fund might not be enough to cover the costs of taking over a failed bank, and that's why they argue it will guarantee future bailouts. The bill says that costs over the $50 billion will be covered by the Treasury.
Additionally, the bill regulates the kind of high-risk speculation on derivatives that some say helped to cause the financial meltdown in the first place. Banks would be forced to open their books on the multi-trillion dollar derivative business.
In the classic film "It's a Wonderful Life," George Bailey's Savings and Loan was such a beloved part of its community, townspeople willingly, lovingly helped bail it out.
Today, the concept of the public loving a bank that much is as anachronistic as a black and white movie.
Far from the debate in Washington in the small town of Mendenhall, Miss., Dennis Ammann runs Peoples Bank, where his grandfather was a real-life George Bailey during the depression.
Today, Ammann said that some sort of financial reform bill is needed, but that taxpayers cannot be on the hook.
"We're going to have another crisis at some point, and the large, complex institutions are going to be at the center, and they should pay for it," Amman said.