By now you have probably realized – correctly – that “financial reform” has turned into a victory lap for Wall Street.
When they saved the big banks, with massive unconditional support (both explicit and implicit) over a year ago, top administration officials promised they would be back later to fix the underlying problems. This they – and Congress – manifestly have failed to do.
Our banking structure remains unchanged, the rules will be tweaked at the margins, and the incentive and belief system that lies behind reckless risk-taking has only become more dangerous. (The back story, if you can still stomach it, is in 13 Bankers).
If you think this is scary, read on:
No doubt the administration feels good about what it has “achieved” on financial reform. The public aura of mutual congratulation will last for about three weeks.
At one point in early 1998, Larry Summers called Brooksley Born – the last person who really tried to rein in the dangers posed by derivatives (and it was a much lower level of danger then compared with now). Summers reportedly said, “I have thirteen bankers in my office, and they say if you go forward with this you will cause the worst financial crisis since World War II.”
We now seem to have come full circle to exactly the same people saying exactly the same things – no doubt top people in the administration are now calling Senator Lincoln and impressing upon her a version of the same point made by Summers to Born.
The 13 bankers have won, completely. Here we go again.
We are setting ourselves up for something that is entirely without precedent…..unless you consider history.
Scott Dauenhauer CFP, MSFP, AIF