Financial policymakers must be suffering from amnesia

Financial policymakers must be suffering from amnesia
© Getty Images

Imagine if, around the time World War II began, the United States had started rolling back the reforms to the financial system passed in response to Great Depression, and you’ll have a sense of what’s going on before our very eyes.

Those New Deal reforms paid dividends for over 50 years. Our response to the 2008 financial crisis may barely last 10.

ADVERTISEMENT

A decade after the crisis, the damage from the 2008 Wall Street collapse and the Great Recession’s effects persist. Wages are stagnant. Retirement savings vanished. Homeownership remains out of reach for many of the millions of families who lost their homes.

The wealth and incomes of those at the top keep rising, while the rest lose ground. But today, American lawmakers and regulators are making decisions as though the crisis never even happened. Policymakers appear to be suffering from fast-onset amnesia.

Instead of working to reshape a financial sector that remains too large, too powerful and still unaccountable, policymakers are encouraging reckless speculation and passing rules that undermine protections for consumers and investors. The reasons are political. The 2008 crisis didn’t break the political power of the banks.

The average American will lose about $70,000 in lifetime income due to what Wall Street wrought, according to a new report from the Federal Reserve Bank of San Francisco, but an average hides major inequalities in the costs of the crisis.

The recession brought increased incomes for the wealthiest but slammed the middle class and low-income households.

According to the latest data, the wealth of high-income Americans had increased by 16 percent since 2007, while middle-class wealth declined by 25 percent. Older Americans were particularly hard hit, since they have less time to repair the damage before retirement.

For communities of color, it was even worse. The Economic Policy Institute has calculated that African-American household incomes dropped at nearly twice the rate of their white counterparts — 9.2 percent versus 5.6 percent — during the first five years after the crisis.

By 2016, median wealth of bank households was down 30 percent from a decade earlier, to $17,000. Black homeownership took a severe hit. 

You would think preventing a new disaster and repairing the damage of the last crisis would remain our common goal. Sadly, you would be wrong. While a number of valuable reforms were passed soon after the crisis as part of the Dodd-Frank Act, even a decade after the crisis, not all have been implemented and others fall short.

Now we have turned toward deregulation. Congress recently passed S. 2155, which reduces risk protections at dozens of the largest banks in the country and rolls back rules to curb racial discrimination in lending. At the same time, Trump regulators are undermining recent reforms.

The Federal Reserve is lowering risk-absorbing capital requirements for even the very largest Wall Street banks that were at the heart of the 2008 crisis, like Goldman Sachs and JPMorgan Chase. Regulators want to water down the Volcker Rule, which prohibits banks from gambling with taxpayer-insured deposits.

Another Trump appointee, Mick MulvaneyJohn (Mick) Michael MulvaneyGOP lawmaker jokes about Trump's next Interior chief: It's going to be Mulvaney Interior chief Zinke to leave administration Mulvaney will stay on as White House budget chief MORE, is doing his level best to eviscerate the Consumer Financial Protection Bureau, a new institution created by the Dodd-Frank law of 2010 that swiftly won $12 billion in relief for consumers and put in place rules that will save many billions more. And Congress rolled back a CFPB rule that restored consumer access to the courts.

Other legislative changes, such as the tax cut passed in 2017, amplify the inequality-increasing effects of the crisis by giving huge tax benefits to corporations and wealthy households, including hundreds of billions of dollars in tax benefits to big banks and financial institutions.

The political influence of the financial services industry has driven this radical shift. Top executives weren’t forced to return their bonuses. Banks didn’t have to break up or accept major new restrictions on their activities, such as a return to prior divisions between commercial and investment banking.

But instead of accepting moderate limits on the scope of their risky activities and new rules designed to protect consumers, Wall Street’s lobbyists went to work weakening their implementation.

They pumped $2 billion in visible money into the political system during the 2016 election cycle, a number they’re on track to outstrip in the current cycle.

After Trump’s election, former Goldman Sachs bankers like Steve Mnuchin and Gary CohnGary David CohnOcasio-Cortez rips presence of lobbyists at orientation event Incoming Dem lawmaker fires back at Trump's former economic adviser: ‘No Gary, YOU don't know what's coming’ Ocasio-Cortez criticizes congressional orientation program for featuring CEOs over labor leaders MORE went to work in the most senior economic policy posts in his administration, and they steered their professional brethren into regulatory posts.

Now their efforts are bearing fruit, leading to record profits for banks and greater risks for the economy. On the 10th anniversary of the crisis, the political power of Wall Street in Washington still counts for more than the rest of us. 

Carter Dougherty is the communications director at Americans for Financial Reform, a coalition of consumer advocates, labor unions, faith groups, and community activists formed to fight for the reforms that became the Dodd-Frank law of 2010.