Wall Street, Financial Regulation, And The Need For Systemic Change

Past blog posts have covered some of the abuses of consumers by banks with credit card interest rate increasses. Our financial and banking system is so complicated, how can a consumer evaluate the financial reform discussion in Washington? How to evaluate the messages from reform advocates and opponents?

I found this episode of the Bill Moyers Journal very helpful. Moyers interviewed financial experts Simon Johnson and James Kwak about the factors that require systematic change and regulation in order to avoid a repeat of the 2008 financial system crisis. Johnson and Kwak are also co-authors of the book, "13 Bankers: The Wall Street Takeover and the Next Financial Meltdown."

After watching the Moyers Journal interview, the book is definitely on my must-read list. In my opinion, it should be on all voters' reading list. The interview covered some interesting topics:

• The management styles and habits typify Wall Street that led to the 2008 meltdown
• What needs to happen for real financial reform in Washington to be effective
• The nature of the threat from an "oligarchy" of 6 banks that control too much of our economy and Americans' deposits
• The case for breaking up the banks: too big to fail is too big
• Why regulation alone isn't enough
• What hasn't changed and how another financial meltdown can happen again
• It's not a partisan issue as neither party (Democrats or Republicans) are getting it right

Some excerpts:

"... according to Kwak, is that the legislation currently doesn't address the central problem of the crisis, that America's banks have grown 'too big to fail.' In fact, the problem has gotten worse, with just six banks holding assets in excess of 63% of the U.S. Gross Domestic Product. Kwak explains that the crisis actually made the surviving banks more powerful... these banks have gotten bigger, because they've bought each other. They've become more powerful. And they have an even stronger market position..."

During the interview, Moyers asked:

"Over the course of my lifetime, and my working career as a journalist, I've seen one regulatory agency after another taken over by the very industries they were supposed to regulate. Regulation requires a President who is committed to tough regulation. If you get a free market President like George W. Bush, you get regulation serving the industry... If you get a Democratic Party that's been compromised by its concessions and capitulations and contributions from Wall Street, you get a regulatory system that is a joke, and that's what we have. What's to ensure that the next regulatory system won't be a joke?"

And Johnson answered:

""The person who nailed this intellectually a long time ago was from the University of Chicago. George Stigler, not a man of the left, got a Nobel Prize [for concluding that] all industries end up with the industry capturing the regulators. What's happened to us is exactly what Stigler warned against, on a massive scale. The [Obama] Administration still argues that we should delegate responsibility, going forward, for lots of things around finance - like how much capital you should have - delegate that to the regulators... Now that's crazy. That's not acceptable. That's not what they should do, particularly because any Democrat should say 'well, wait a minute, the next free market president who doesn't believe in regulation [that] comes in will gut the system.' And any person from the right who's read Stigler should say 'well, those regulators are just gonna get captured.' You've got to put it in legislation..."

One blog that I will definitely start reading regularly is The Baseline Scenario. Sadly, Brooksley Born was right, and was shunned by supposed financial experts who knew better.

Comments

[Rajiv]

Regulation requires a President who is committed to tough regulation. If you get a free market President like George W. Bush, you get regulation serving the industry...

[DE ELLIS]

How do we make our voices heard? President Obama recently reminded us to keep speaking up and hold him accountable. This is something he said during his campaign. Now that he's in DC, he is surrounded by voices that are amplified by money so they reach him first, fast and constantly.

Wall Street bonuses are about to go up another 15% this year. Meanwhile, senior citizens who rely on their savings to survive, cannot find better than 1% interest on what they worked all their life to accumulate and have not gotten a cost of living increase in their Social Security.

What do we do? How and where do we gather? How can we keep speaking up so the President hears us and we are not drowned out by lobbyists, Wall Street, CEOs and even the President's own staff and cabinet.

Help.

[George]

De Ellis:

Things I do to be heard:

1) Send email to the President
2) Call the White House
3) Email or call my Congressional reps (House & Senate)
4) Participate in the discussion on Change.org
5) Write letters to the editor at local newspapers
6) My personal financial reform plan: I am in the process of moving my money from a big bank to a small, local bank
7) Give financial support to political candidates that represent your views

#6 is perhaps the most important. I am sure that readers of this blog will have more suggestions.

George
Editor
http://ivebeenmugged.typepad.com