The Great Recession Might Have Been All for Naught

The Financial World According to Inya” Column
by Inya Ivkovic, MA

Not long after President Obama won the 2008 elections, his chief of staff, Rahm Emanuel, reminisced on numerous crises that his new boss was left to clean up after the Bush administration. He talked about financial, energy and foreign policy debacles, saying something along the lines that no serious crisis should go to waste by our not learning anything from it. Instead, it should be perceived as an opportunity to do things differently, and hopefully better. Emanuel also promised sweeping changes to the financial regulatory system that would be based on ultimate transparency and accountability.

Alas, it seems that the Great Recession will have been all for naught, because we are still eagerly awaiting reforms aimed at preventing the return of speculative bubbles and everything that may follow in their wake. In the past quarter of a century, speculative bubbles have happened far too often because regulations remained meek, while undiluted arrogance and greed only gained momentum.

Not surprisingly, as Congress wastes precious time, Wall Street uses the opportunity to go back to its own prodigious ways, thinking, “If Congress isn’t really reforming anything, why worry?” Who could fault Wall Street for thinking perhaps all that the politicians want from it now is to go back to making money, preferably more for themselves, of course, and some leftovers for the economy, so the “old girl” could get moving again.

Many firms that have been rescued by taxpayers, such as Goldman Sachs, JPMorgan Chase, and Morgan Stanley, to name just a few, enjoy the best of both worlds. They are not subject to any serious regulation yet, while an interest rate environment that’s ultra-low allows them to get their hands on more money for next to nothing and then turn around to exploit the ever-widening spreads, collecting profits that may have been inconceivable about a year and half ago.

Granted, the Congress has made the first steps towards regulatory reform, albeit only baby ones. For example, Democrats in the House managed without one single vote from Republicans to create a new financial Services Oversight Council, which is supposed to monitor Wall Street and all the goings-on there closely. The Council even got a budget of $150 billion, the purpose of which is to help winding down financial institutions in trouble. However, this is a far cry from “No financial institution should be too big to fail,” and an even further one from finally telling the Wall Street, “Which part of ‘no’ is it difficult to comprehend?”

From what I can tell, apart from the pitiful Citibank that is still owned by the government, no one on Wall Street appears to be a bit phased by the “threat” of more stringent regulation. Everyone seems to be fairly certain there is no bite accompanying this particular bark.

Will Wall Street ever fess up to the role it played in creating the Great Recession? Will Wall Street finally realize that taking excess risk is not a good business practice? Will Wall Street be brought under control with more stringent, no-nonsense regulatory reform? Will the powers that be finally listen to Paul Volcker, a former chairman of the Federal Reserve and current economic adviser in the Obama administration, who said, “I’m very interested in using this crisis as a way to avoid the next one. This isn’t any time to go back to business as usual.” In two words or less — not likely! It seems nothing sticks on the Street, as it slithers its way out of accepting any responsibility for its stupid mistakes and truly revolting behavior yet again.