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September 24, 2013

How Washington Caved to Wall Street

In TIME’s recent cover story “How Wall Street Won,” Rana Foroohar gave an excellent appraisal of the last five years since Lehman collapsed. While her analysis hit at five of the major shortfalls in our “reformed” financial sector, there was even more she could have pointed to: Five years after the crisis, why have we not even begun putting the mortgage market on a sound footing? Why has so little been done about banks’ market manipulation? The LIBOR scandal is a major example. Nothing has been done to replace this manipulable (and manipulated) figure, a fictional number that remains the basis of a more than $300 trillion market.  And every day we are exposed to new stories of banks manipulating one market or another—most recently, energy and ethanol credits. The list of issues goes on. While we recognize that predatory lending was part and parcel of the failure of the subprime mortgage failure, we continue to allow payday loans. The only successful actions against the credit rating agencies since the crisis have been private suits (both in the US and Australia).

The causes of much of this neglect are all too obvious: congressional lobbying combined with a revolving door, with too many people in the administration too closely tied to the financial sector. The Treasury Department’s strong reaction to TIME’s article only convinced me more of how important and accurate your report is.  You pointed out that only 40 percent of the regulations required by Dodd-Frank have been written. Treasury seemingly prides itself that, three years after Dodd-Frank, they have completed, or are in the process of completing three fourths of the deadlines set by Congress.  In other words, they are tardy on more than a quarter.  And many of the obligations are far softer than they should have been—partly because the administration failed to support those who wanted deeper reforms, for example in transparency of the derivatives market.  Nothing was done in curbing the anti-competitive practices of the credit card industry (only debit cards were affected by the Durbin amendment, and even the courts noted that the interchange fee set for debit cards was unconscionably high, well above costs).


Read Joseph Stiglitz’s column in Time here

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