If the adage, “Those that do not learn history are doomed to repeat it” is true, what would happen if the lessons learned did not change your behavior? What if bad behavior was rewarded? Can we take steps to ensure that we have learned, and our history will not repeat itself?
That was the topic of the discussion of the fifth anniversary of the release of the report of the Financial Crisis Inquiry Commission, led by Sen. Elizabeth Warren (D-Mass.), the commission’s chairman, Phil Angelides, and member Brooksley Born, and former Federal Deposit Insurance Corporation Chairman Sheila Bair.
“Normally, you tend to learn from the consequences of your mistakes,” said Angelides, the former treasurer of California, “but there has been none of that on Wall Street. When you look at Wall Street, very little has changed.”
The Financial Crisis Inquiry Commission report was the result of a year-long investigation into the caucus of the 2008 financial meltdown. The report exposed “widespread failures in financial regulation; dramatic breakdowns in corporate governance; excessive borrowing and risk-taking by households and Wall Street; policy makers who were ill prepared for the crisis; and systemic breaches in accountability and ethics at all levels.”
“The problems [of the financial crisis] were created by bad policies and messed up incentives,” said Warren. “That is both the good news and the bad news. It is the good news because it means we can fix this, it is the bad news because it means a handful of giant Wall Street banks can spend hundreds of millions of dollars to make sure the game stays rigged in their favor.”
Warren has pushed for more rules that would increase competition, support innovation and make it more difficult for banks to cheat people and pass the risks onto taxpayers, forcing another bailout. “The departure from these two basic rules in the 1980s and 1990s paved the way for the financial crisis. Our best hope to protect ourselves from another crash is to put these rules back into place.”
“It’s time for the Justice Department and the SEC to get serious about enforcing our laws against financial fraud,” she said. “Even when financial institutions engage in blatantly criminal activity, these agencies don’t take big financial institutions to trial. Instead, they let lawbreakers pay fines and promise not to do it in the future.”
Angelides agreed. “It’s quite remarkable that the government has obtained fines of more than $36 billion dollars from 18 financial institutions related to misconduct in the packaging and sale of mortgage securities around the world… but remarkably, not one individual was involved. Not one senior executive has paid [for their misconduct]; the shareholders have paid,” he said.
Warren released a report last week highlighting the most egregious cases of weak federal enforcement of law on big corporations. Big banks constituted 30% of the 20 cases mentioned in the report. “Big banks are getting off easy when they break the law, and unless that changes, they will keep breaking the law.”
That is the problem of the phoenix that arose from the ashes of 2008. The banks that were deemed “too big to fail” were saved from destruction, and only grew richer and more politically powerful from government intervention. The top 11 banks are currently “too big to fail,” meaning that if any of them went under, they might take the US economy with it.
“So what do we do about ‘too big to fail’? Simple, we break up the biggest banks. Halve the size of the biggest financial institutions and adopt a 21st Century Glass-Steagall Act that rebuilds the wall between commercial and investment banking,” said Warren.
The problem with this, as the panel noted, is that the banks have grown larger, and have more than doubled their lobbying spending in the last 15 years, averaging just under a half a billion dollars a year in the last five years. This has increased their power in Washington, which, to be fair, was always high, but has made the arms race that much more high-dollar.
Ending too big to fail and reinstating Glass-Steagall are issues in the Democratic Party that the two remaining candidates, Sen. Bernie Sanders (I-Vt.) and Secretary Hillary Clinton, must answer. Sheila Bair, the former FDIC Chair said that from the candidates, “We need more than just sound bites, but things that can be executed, and meaningful reforms.”
To that end, Sanders has proposed the “Too Big to Fail Too Big to Exist Act” in the last session of Congress. That legislation would break up banks that threaten our economy and would reinstate Glass-Steagall, separating commercial and investment banking. Secretary Clinton, on the other hand, has said she would allow the biggest banks to fail, but does not support reinstating Glass-Steagall,
Americans have a choice to make in the coming election between candidates: either learning a lesson and implementing regulations that allowed America to grow its middle class after the Depression, or continuing down a path of fewer regulations, leading us this time not into a recession, but another depression.