I don’t think I’ve ever agreed with anything that Robert Reich has said more than I do with this post of his from yesterday. In the post he expresses outrage that the very people who were, at the very least, the sentinels who should have warned of the coming financial crisis, are dodging any responsibility for it:
If any three people are most responsible for the failure of financial regulation, they are Greenspan, Larry Summers, and my former colleague, Bob Rubin. In 1999 they advised Congress to repeal the Glass-Steagall Act, which since 1933 had separated commercial from investment banking. By 1999, Wall Street was salivating over such a repeal because it wanted to create financial supermarkets that could use commercial deposits to place bets in the financial casino. That would yield the Street trillions.
At the same time, Greenspan, Summers, and Rubin also quashed the efforts of the Commodity Futures Trading Corporation to regulate derivatives, when its director began to worry that derivative trading already was getting out of control.
I’ll repeat the phrase of Felix Salmon’s that I found so apt a few weeks ago: Robert Rubin is the Forrest Gump of the financial crisis. He’s present at every step along the way.
And yet, some how some way those whose fingerprints are most present and, arguably, should have acted otherwise have not only managed to escape scot free but have actually prospered.
He goes on to criticize not only the financial reform bill but also the measures that have been taken to date to address the country’s economic problems. Unfortunately, I suspect that his primary criticism is that the stimulus should have been larger which I believe is to misunderstand the nature of the structural economic problem that confronts us.
I note that his interpretation of the recent unemployment report is much the same as mine:
Last Friday’s jobs report, read most positively, showed 112,000 private-sector jobs added to the economy in March. But that’s below the number needed simply to keep up with an expanding population. In other words, we’re actually worse off now than we were a month ago. At the same time, the median wage of Americans with jobs keep dropping.
I think he’s being overly generous in his estimate of the number of private sector jobs. When 60% or more of the revenues of any economic sector is derived from tax revenues it is at best semi-private.
And again unfortunately it is all but inevitable that any steps that planners take to restore the health of the economy will be backward-looking, attempting to restore the status quo ante. Which is what got us into this mess in the first place.
A comment that I believe ties to this and the last post:
I would highly recommend that people read Architects of Ruin, which chronicles the evolution of the early years of “affordable housing” activism to CRA driven litigation to the rise of the subprime home loan phenomenon to the rise of the mortgage backed security and its global syndication, with an unholy alliance of fair housing activists/sympathetic government/mortgage originators/loan syndicators.
I have previously commented on this phenomenon and been pooh-poohed. Similarly, I know some will pooh-pooh this book because of its author’s Heritage Foundation affiliation. But the citations are sufficiently rich that I do not believe any rational person could not come away knowing that the general thrust is correct. (And by the way, he does not spare the rod for the Republicans) And as a former lender who actually understands credit, much of it resonates. Further, as a lender who witnessed with his own eyes and ears the very things described in the section of the book on militant CRA enforcement, you have to ask whether you are going to believe what you saw, or the apologists and deniers.
Points:
1. To your point, Dave, Rubin has come off as an angelic figure, despite blood dripping – no gushing – from his hands. (Well chronicled in AofR).
2. Missing from the guilty list are Barney Frank, Maxine Walters and Chris Dodd. I have previously cited CSPAN tapes of Congressional hearings on the housing matters where you can see their castigation of regulators with your own eyes and ears. Its ugly. BTW – Frank’s response to the audacity of the regulators oversight (criticism)? Reduction in their funding.
3. Reich conveniently picks up the ball at 1999, well after a number of 1990’s Wall Street bailouts, and of course LTCM. The course had been set, Robert. No selective memories, please.
4. Speaking of which. The CFTC battle is precisely the one I was talking about when I posted awhile back recommending people search and watch a PBS Frontline documentary. Summers, Guetner, Greenspan all come off badly. Among others.
But to an earlier comment I made a couple posts ago……there was no mystery about the bubble. None. Everyone knew we were walking the plank. (Not the public, but people who were in a position. In fact, in Barney Frank’s own words: “..I want to roll the dice a bit more on this…”) Its very well documented. But political considerations – the desire for a public policy experiment/result – prevailed.
The rest has been a political coverup.
The banks successfully ignored the CRA for many years. They would have continued to ignore it for many more, with a few key donations. Instead, they learned that they were making money on those and similar loans. Collison wrote the best thing I have seen trying to blame the crisis on the CRA, and even that came off pretty weak.
I would like to add Phil Gramm to that list.
Steve
“The banks successfully ignored the CRA for many years.”
I think “ignored” is the wrong word. Better concept: The costs of making bad loans was “contained” until the machine geared up to force more volume.
“They would have continued to ignore it for many more, with a few key donations. Instead, they learned that they were making money on those and similar loans.”
No, actually. The foreclosure rate on these loans approached 40% for some originators. Do the math. You can’t make money in banking with high principal loss rates. The real story is that they discovered they could off-load them from their balance sheets.
To sum up:
We’re f*cked.
There is no meaningful reform. Nothing has really changed in terms of who is setting policy (Geithner, Summers, missing Rubin, Bernanke instead of Greenspan). Politicians want to get thing back to the way they were which was not healthy nor sustainable.
Change you can belive.
Suckers.