Unregulated Greed

When the markets crashed in October, 2008, I was certain of two things: (1) that Barack Obama would be elected along with strong Democratic majority in both the House and the Senate, and (2) that the new Democratic majority would (correctly) make Wall Street pay for its complete and utter irresponsibility. I was right about the first outcome, but completely wrong about the second.

The US taxpayer bailed out Wall Street and set the stage for a really profitable 2009 for banks and brokerages. Many Wall Street firms have reported larger profits in 2009 than they did in 2007. As a consequence, financial industry executives, including many who were responsible the debacle in October, 2008, will get multimillion dollar bonuses at the end of the year. The taxpayers, who allowed their firms to stay solvent, get exactly ... nothing.

Instead, with the acquiescence of Barney Frank’s and Chris Dodd’s Banking committee and the Democratic majority in Congress, we get toothless legislation that sets the stage for still another financial debacle down the road. It’s a disgrace.

David Paul Kuhn outlines what must be done and why it won’t be accomplished:

We now know what must be done. Far stronger capital requirements. Derivative regulation. A system to resolve "too big to fail." Walking back the exposure to risk and monitoring risk. A crack down on bad and exotic mortgages. The new Consumer Financial Protection Agency, with banks not exempted. Bank regulators conjoined into one agency, much as we learned to reorganize the intelligence community after 9/11.

But the bank lobby is mighty and is fighting reform. Thus far, Democrats have not gotten it done. To his credit, President Obama is trying. But talk is easy. Democrats must close. Or they are not worthy of their mandate.

People get the democracy they deserve. And they get the capitalism they accept. "Is capitalism flawed?" Kudlow asked. Of course it is, but only to the extent we allow it be.

The problem isn’t capitalism, it’s unregulated greed and irresponsible financial behavior. Wall Street executives are too often driven by obscene bonuses that are tied to high risk financial instruments (e.g., CDOs) that are unregulated and dangerously risky. But why worry, the taxpayers cover their incompetence when the risk blows up. After all, they’re too big to fail.

Instead of expending political capital on ridiculous and ruinous cap and trade legislation, President Obama should show some leadership in getting stringent Wall Street reform legislation passed. As each week passes, it becomes increasingly evident that our President talks a good show, but can’t seem to get a Congress with an overwhelming majority of his own party to do what needs to be done. And that is also a disgrace.