In the wake of JPMorgan Chase’s announcement of losing $3 billion in another failed financial scheme, the topic of government regulation over banks has become front and center again. Add the fuel of a Presidential election and we are back debating the fundamental merits of government regulation over the banking industry. We as a nation are apparently in group amnesia, forgetting the $700 billion bank bailout and the 2008 recession.
Presidential candidate Mitt Romney says, if he is elected president, he would repeal the Dodd-Frank financial reforms which were enacted by Congress as a corrective response to the 2008 economy-damaging banking practices. This is a position favored by donors on Wall Street who have sent millions Romney’s way. Even with the recent news that one of the better “risk averse” banks lost $3 billion through unacceptably high risk market investments, Republican Mitt Romney denounces the Dodd-Frank legislation as regulatory overreach.
While it’s obvious that Mitt Romney is not my candidate, his suggestion that we should undo the lesson learned from the ongoing 2008 recession is the ultimate head in the sand approach to problem solving. To understand how dangerous this attitude is all we need do is take a small glimpse into American history.
In his New York Times editorial “Why We Regulate”, Economist Paul Krugman reminds us that “the risks taken by banks are borne in large part by taxpayers and the economy as a whole” and as such become subject to “panics”. In the 1930s, after the Great Depression, the mother of all “panics”, economists determined that workable solutions involved guarantees and oversight by government. He notes “this system gave us half a century of relative financial stability. Eventually, however, the lessons of history were forgotten. New forms of banking without government guarantees proliferated while conventional and newfangled banks were allowed to take on ever-great risks. Sure enough, we eventually suffered the 21st century version of a Gilded Age banking panic, with terrible consequences. And what JPMorgan has just demonstrated is that even supposedly smart bankers must be sharply limited in the kinds of risks they’re allowed to take on.”
With his ties to Wall Street as CEO of Bain Capital, could Mitt Romney be oblivious to this history? His opposition to the Dodd-Frank law shows his inability to place responsibility for the disastrous economic crash where it belongs: on the heads of the leaders on Wall Street and the big banks. This is not good for America.
We all paid dearly to bail out Wall Street. Preventing irresponsible risk by banks “Too Big to Fail” should not be a partisan issue. We shouldn’t be asked to choose between Wall Street and Main Street as a vibrant economy needs both in stable condition.
While Juneau, has ridden out the undoings of the 2008 recession, many industrialized regions and manufacturing towns in the Midwest and East have not. According to former Labor Secretary, Robert B. Reich, “cuts in government spending are reducing domestic demand precisely at the time when consumers are reaching the end of their ropes and can’t spend more. Consumers did all the spending they could in the first quarter. Absent real wage gains, that spending pace can’t possibly continue. Consumer savings are down and their debt is up. Consumer confidence dropped last week to a two-month low. The only people left spending are in the top 5 percent.”
No one sings about this painful dichotomy in America better than Bruce Springsteen. In his new album Wrecking Ball, he paints a picture of an America where “The banker man grows fat/Working man grows thin.” In his populist tune “Death to My Hometown” the working man’s frustration is palpable. Listen to the personal story behind these words:
“Send the Robber Barons Straight to Hell
The Greedy Thieves Who Came Around
And Ate the Flesh of Everything They Found
Whose Crimes Have Gone Unpunished Now
Who Walk the Streets as Free Men Now
They Brought Death to Our Hometown, Boys”
Since Wall Street candidates like Mitt Romney are making us choose, my choice is no more death to hometown’s across America. Let’s not abandon Dodd-Frank, let’s build on it. Let’s implement it as soon as possible to avoid paying for the next big bank failure. It’s time to put Main Street first.
• Troll is a longtime Alaska resident and resides in Douglas.