Speaking of not learning lessons, take a look at this post by Jeffrey Dorfman at Forbes on our lack of meaningful reforms after the financial crisis of 2007-2008:
All the features of the mortgage market that contributed to the mortgage crisis still exist. No new regulations put in place since the recent recession have done anything to prevent a recurrence of a financial crisis. The incentives for mortgage originators still favor volume over systemic risk management. Borrowers are getting deeper into debt again after paring back following the recession.
This is not a case of those who don’t know history being doomed to repeat it. Virtually everyone in the financial industry remembers what happened and understands at least many of the causes. Yet, we still may repeat the last housing crisis because we are currently busy duplicating all the conditions necessary for another mortgage market meltdown. If we don’t change paths soon, we will pay a price for failing to learn the lessons of the recent financial crisis.
I disagree with his interpretation of Dodd-Frank. I don’t believe that Dodd-Frank was intended to reform anything. I think it was intended to demonstrate to the voters that the Congress was doing something. However, to paraphrase Upton Sinclair, never underestimate the ability of people to avoid reform when their livelihoods depend on not reforming.
I would hope that in reaction to the next financial crisis and there will be a next financial crisis we have the good sense to let the big banks fail. The consequences can hardly be worse or last longer than what we actually did. And a good bit of those consequences will fall on those whose imprudence caused the problem in the first place rather than on those who couldn’t have done anything to stop it.