Today President Obama had a meeting with a group of leading bankers -- CEOs from firms like Bank of America, J.P. Morgan Chase, and Goldman Sachs -- to talk about the need for banks to start getting the money that's going into banks' reserves right now start flowing into the economy in the form of lending activity.
But Obama also talked about the bigger picture -- namely, the absolute need to reinstate many of the financial-sector regulations that were torn down in the past decade and more, which led to the economic disaster we're now trying to recover from:
We also discussed the need to pass meaningful financial reform that will protect American consumers from exploitation and American -- the American economy from another financial crisis of the kind which we just came out of.
I noted the resistance of many of the financial sectors to these reforms -- the industry has lobbied vigorously against some of them -- some of these reforms on Capitol Hill. So I made it clear that it is both in the country's interest -- and ultimately, in the financial industry's interest -- to have updated rules of the road to prevent abuse and excess. Short-term gains are of little value to our banks if they lead to long-term chaos in the economy.
And I made very clear that I have no intention of letting their lobbyists thwart reforms necessary to protect the American people. If they wish to fight common-sense consumer protections, that's a fight I'm more than willing to have.
The way I see it, having recovered with the help of the American government and the American taxpayers, our banks now have a greater obligation to the goal of a wider recovery, a more stable system, and more broadly shared prosperity.
So I urged them to work with us in Congress to finish the job of reforming our financial system to bring transparency and accountability to the financial markets; to ensure that the failure of one bank or financial institution won't spread throughout the entire system, and to help protect consumers from misleading and dishonest practices with products like credit and debit cards, with mortgages and auto and payday loans.
Now, I should note that around the table all the financial industry executives said they supported financial regulatory reform. The problem is there's a big gap between what I'm hearing here in the White House and the activities of lobbyists on behalf of these institutions or associations of which they're a member up on Capitol Hill. I urged them to close that gap, and they assured me that they would make every effort to do so.
In the end, my interest isn't in vilifying any one person or institution or industry; it's not to dictate to them or micromanage their compensation practices to ensure that consumers and -- my job is to ensure that consumers and the larger economy are protected from risky speculation and predatory practices, that credit is flowing, that businesses can grow, and jobs are once again being created at the pace we need.
America emerged from the Great Depression with a tightly regulated banking system. The regulations worked: the nation was spared major financial crises for almost four decades after World War II. But as the memory of the Depression faded, bankers began to chafe at the restrictions they faced. And politicians, increasingly under the influence of free-market ideology, showed a growing willingness to give bankers what they wanted.
The first big wave of deregulation took place under Ronald Reagan — and quickly led to disaster, in the form of the savings-and-loan crisis of the 1980s. Taxpayers ended up paying more than 2 percent of G.D.P., the equivalent of around $300 billion today, to clean up the mess.
But the proponents of deregulation were undaunted, and in the decade leading up to the current crisis politicians in both parties bought into the notion that New Deal-era restrictions on bankers were nothing but pointless red tape. In a memorable 2003 incident, top bank regulators staged a photo-op in which they used garden shears and a chainsaw to cut up stacks of paper representing regulations.
And the bankers — liberated both by legislation that removed traditional restrictions and by the hands-off attitude of regulators who didn’t believe in regulation — responded by dramatically loosening lending standards. The result was a credit boom and a monstrous real estate bubble, followed by the worst economic slump since the Great Depression. Ironically, the effort to contain the crisis required government intervention on a much larger scale than would have been needed to prevent the crisis in the first place: government rescues of troubled institutions, large-scale lending by the Federal Reserve to the private sector, and so on.
But the financial sector -- and their friends in the Republican Party and the conservative movement -- are in complete and utter denial about this, as Krugman went on to explore vividly. Apparently, they're willing to completely wreck the economy all over again just for the sake of hanging onto one of the remaining scraps of conservative dogma -- namely, that deregulation is innately good, because government is innately bad.
The fact is that the financial sector, particularly these big banks, have been flooding the Hill with lobbyists working hard to knock down any attempts to reinstate post-Depression regulations. Just ask Rep. Peter DeFazio, who is trying get the Glass-Steagall Act reinstated.
But because it is so intellectually and ethically bankrupt and so desperate to retain some semblance of power, the American Right is completely in the throes of denialism, which is best defined as "the employment of rhetorical tactics to give the appearance of argument or legitimate debate, when in actuality there is none."
So we get nonsense about the Community Reinvestment Act and how lazy shiftless minorities were the reasons for the Bush Recession.
At some point, the right-wing obfuscation has to stop. You'd think they'd realize it's in their own economic self-interest to stop. But that's like expecting a scorpion not to sting a dog on whose back it's crossing a river.