Yale law professor Jonathan Macey ends his Wall Street Journal op-ed with a prescription I could support wholeheartedly:
Banks that are considered too big to fail should be dismantled into smaller pieces that the economy can digest. And the government should make it clear that it will allow these institutions to fail. When this happens, the shareholder-owners of these banks will pay their managers much more sensibly—and Mr. Obama will be able to wash his hands of the business of helping out the fat cat bankers on Wall Street.
The editorial slug summarizes the op-ed this way:
Surprise! Banks with government guarantees take the biggest risks, make the most money, and pay the highest bonuses.
I believe they’ve left out something important: these large institutions also hire the most political operatives, paying them the most money. Which explains why the reforms that Mr. Macey is proposing must be preceded by another reform that won’t happen: there needs to be a substantial cooling off period between jobs in the private sector and jobs that influence that sector. When retired senators or Congressmen become lobbyists, when professional political fundraisers can exploit a revolving door among fundraising, jobs in government, and jobs in the financial sector raking in piles of cash, it’s just as corrupt as pay-for-play is here in Illinois or a local official in some Third World country requiring a bribe before doing what his duty presumably requires him to do anyway.
Calling it a job doesn’t make it a job and not calling it a bribe doesn’t mean it’s less of a bribe.
Its pretty obvious really…incestuous relationships are never healthy relationships and here we see it oh so clearly. Will this be changed? No. Why? Because there is too much money at stake for the political class. This is why I think people who espouse progressive views like Yglesisas, Drum, Reynolds, Krugman, DeLong, and so forth are, in the end, foolish. There are no magic ponies out there.