It has been a busy past few weeks for those corporate warriors fighting the ongoing battle to gut financial regulation and set the big banks free. After Republicans proposed Dodd-Frank changes that would likely
strangle the entire law, Democrats
agreed to modest tweaks amongst themselves last week, in order to hold off Republican extremism, while the battle over TPP fast track, which could help a future
Republican president gut Dodd-Frank, persists.
Additionally, there were also a couple of surprise appearances from former hot shots, who fell so fast from grace, you’d think they had taken a bite of some kind of forbidden fruit. On May 28th, after the better part of a decade living incognito, one of the most hated bankers in the world, former CEO of Lehman Brothers Dick Fuld, returned to the public to give a speech at an investor conference. And of course, Fuld blamed everyone but himself for Lehman’s implosion. Well, actually, he pretty much blamed the government for everything.
“What led to the ’08 crisis?...It’s not just one single thing. All these things taken together—I refer to it as the perfect storm. But it starts with the government. They wanted everybody to be able to fulfill their view of the American dream.”
Ah, yes, the usual conservative talking point, blame the government and its bleeding heart want to provide everyone (especially minorities!!!) with a home they cannot afford. Fuld is specifically pointing to the Government-Sponsored Entities like Fannie Mae and Freddie Mac, along with the Community Reinvestment Act of 1977, which the right wing continues to blame as the major cause of the housing crisis. But this is a long ago discredited myth, cooked up by the right to go after the usual scapegoat.
The financial Crisis Inquiry Commission wrote that “only 6% of the high cost loans - a proxy for subprime loans - had any connection to the [CRA]. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law.”
The Federal Reserve similarly concluded: “We find little evidence that either the CRA or the GSE goals played a significant role in the subprime crisis. Our lender tests indicate that areas disproportionately served by lenders covered by the CRA experienced lower delinquency rates and less risky lending.”
But don’t expect Dick Fuld or other free market dogmatists to concede that private finance holds the majority of the blame, because that would undermine their whole “government is the problem” theory; the theory being used to undermine current financial regulations or further actions to crackdown on the too big to fail banks, which are even larger than last time we heard from Fuld.
Fuld wasn’t the only former hotshot to recently appear in the headlines bashing the government. Former congressman Eric Cantor also made a return, after being humiliated by tea partier David Brat in last years primaries. Cantor is now on Wall Street, and is mad as hell at Dodd Frank regulation, which he voted against back in 2009. “We need the system to work for everybody. I think a much more rational approach is needed,” said Cantor, of Dodd Frank, “[It's] this dogmatic 'anything that's big, that's bad, anything that's Wall Street regulating we need to support' versus some rational sense of what we're really doing.” Cantor believes that changes will be necessary “if we mean for there to be competition in the lending arena. If we mean for there to be robust access to capital ... that we want an environment for risk taking, for entrepreneurs and small businesses to grow.”
Indeed, changes are necessary, but not the deregulatory changes that Cantor would advocate. Clearly there are problems with our current regulatory apparatus, one of the most apparent being that it is immensely complex and bureaucratic. In a recent article, David Dayen writes:
“The truth is that, regardless of what you think of the Dodd-Frank reform law, the financial regulatory system we have is incredibly unintelligently designed. Overlapping responsibilities, an alphabet soup of agencies zealously guarding their jurisdictions and a lack of a clear hierarchy has created such a morass that major problems can easily fall through the gaps.”
The Volker Alliance released a paper earlier this year outlining a plan to address this problem by reorganizing and strengthening our regulatory system. It would eliminate or combine certain agencies, empower others to focus on their strengths, and create a new “Prudential Supervisory Agency,” which would be “responsible for the supervisory authority now stretched across five different federal agencies.”
Beyond restructuring our regulatory system, Martin Wolf advocates much higher capital requirement rates for the big banks, to lessen leveraged risk. The Fed has already introduced higher requirements for U.S. banks than the 3% Basel standard, set to phase in between 2016 and 2019. Fed Chairwoman, Janet Yellen, said that the new requirements “would encourage such firms to reduce their systemic footprint and lessen the threat that their failure could pose to overall financial stability.” Whether the new requirements are enough to prevent future disaster and reduce the size of the big banks, which are coincidentally bigger than ever, is yet to be seen.
What cannot be rationally argued, however, is that the government has overreacted in their response to the financial crisis. Eric Cantor calls liberals “dogmatic” in their support for crackdown on Wall Street, yet he is the one who remains trapped within the dogmatic mindset of pre-financial crisis neoliberalism. He wants “an environment for risk taking,” but it is the irrational risk-taking on Wall Street that lead to our collapse in 2008. Dick Fuld would be able to testify to this if he weren’t busy blaming the government for his sins -- Lehman Brothers had a total assets-to-shareholder equity leverage ratio of 31 in 2007, with a massive portfolio of toxic mortgage securities. Very risky indeed.
Of course, blaming the government for all of societies ills is always easier than admitting to personal wrongdoing. Then, of course, you can argue that the government is screwing everything up again when they attempt to prevent another disaster. Personal responsibility, after all, is not something taken too seriously on Wall Street, as Fuld clearly shows.
