Frontline’s third episode of Money, Power, and Wall Street concludes: the financial crisis never ended. Last Friday that became more evident. Firing three executives at JP Morgan solves nothing. The time for “Old Testament Justice” is past. But Congress seems powerless against the bank lobby.
Three years ago, in the midst of a home grown global financial crisis, President Obama erred on the side of caution. Instead of systemic changes to the financial sector, he and his team chose a course of confidence building, a course advocated by Secretary of the Treasury Tim Geithner who argued against “Old Testament Justice.” Others close to Obama, like Larry Summers and Christina Romer, called for a more dramatic course: heads should roll.
It is clear now, and hindsight is always more vivid, that in the midst of the crisis the opportunity for substantive change was lost. The fight to keep the markets afloat fatigued the new administration with other irons in the fire. The success of the bailout was the enemy of any regulatory structure designed to avoid bailouts including eliminating banks “Too Big to Fail.” Flush with cash from the Obama policy success, banks successfully lobbied for the status quo.
Now, on its own, JP Morgan has managed to lay out the case for regulation following another episode of the malfeasance that precipitated the economic disaster of 2008.
While JP Morgan has offered up some heads, this is only a distraction. Retribution after the fact does not change the fact. The financial sector will not regulate itself nor should it be expected to. It is time for a return to the lessons of the 1920’s. Obama needs a Joe Kennedy.
Sen. Carl M. Levin (Mich.) said Sunday that the JP Morgan loss only confirms that banks’ pushback against new rules passed after the financial crisis will backfire.
“This was not a risk-reducing activity that they engaged in. This increased their risk,” Levin said on “Meet the Press.”
“So we’ve got to be very, very careful that the regulators here are not undermined by this huge effort to weaken the rule by putting in a huge loophole” that includes the trading that caused the JP Morgan loss, he said. – Washington Post
There really is nothing new under the sun.
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