Is It Denial – Or Corruption?
The financial reporter for The New York Times Gretchen Morgenson notes that the report of the Financial Crisis Inquiry Commission “makes for compelling reading because so little has changed.” It’s what’s missing that captured her attention.
For months during the crisis, we were preoccupied with financial institutions that were “too big to fail.” It seemed obvious that the big banks whose collapse would be catastrophic for the economy either had to be broken up or regulated so they couldn’t take on undue risks again.
The related problem was “moral hazard.” That is, if the government rescued them from the consequences of their own behavior, that would undermine the principle that we are all responsible — and accountable – for our mistakes. Saving the banks would put them in a privileged category — and increase the likelihood that they would go ahead and do it again.
And it was not lost on most of us, at that time, that this privileged treatment contrasted with the foreclosures and dispossession experienced by tens of thousands of homeowners who defaulted on their mortgages. Who was coming to their rescue?
Morgenson points out that there is nothing in the new congressional report about “too big to fail.” She suggests, in fact, that further bailouts lie ahead, and moral hazard has indeed occurred. The recent report to Congress of the special inspector general for TARP noted that when the government stepped in to save Citigroup in 2008, “it did more than reassure troubled markets — it encouraged high-risk behavior by insulating risk-takers from the consequences of failure.” (See, “A Bank Crisis Whodunit, With Laughs and Tears.”)
This is definitely not a case of unconscious motivation. It’s taking place in broad daylight. The facts are clear. What’s missing is the urgency, the importance and meaning of the facts. What was so obviously needed two years ago, has simply become unimportant. Why?
No doubts the big financial firms themselves were against it. They didn’t want to be broken up, and they didn’t want to be regulated any more than they had been. They wanted to be free to resume business as usual. And, of course, they have tremendous influence through their lobbyists and political contributions. A Republican congress, moreover, is more likely to be on their side.
But I suspect that, in our general eagerness to get out of the recession, we all are also willing, shortsightedly, to let the banks resume their old practices. We, too, want to go back business as usual. The risk just doesn’t seem so risky anymore.
So it could be the corruption of our system where money determines policy. Or it could be a kind of collusive denial, abetted by our fading memories.
Or it could be both: Reining in the banks seems less and less important as time goes by – and less and less likely.