President Barack Obama talked tough to America’s biggest bankers on the first anniversary of the Lehman Bros. collapse that set off the global financial meltdown. But they mostly disagreed or weren’t listening.
His stern lecture demanded their cooperation in enacting his proposed financial reforms intended to prevent another orgy of risky trading, dubious investment products, fraudulent deception of investors and sky-high executive compensation — the pattern that led to the collapse and panic a year ago and the great recession that is still dragging on.
Many of the bankers in his audience scowled and kept checking their BlackBerrys, according to The New York Times, as he urged prompt reform and reminded them that their ranks included some who had been saved from disaster by government bailouts. He told them: “It is neither right nor responsible after you’ve recovered with the help of your government to shirk your obligation to the goal of wider recovery, a more stable system and a more broadly shared prosperity.”
Mr. Obama began his remarks in a conciliatory tone, blaming the near-collapse of the financial system on “a collective failure of responsibility in Washington, on Wall Street and across America.” But he immediately trained his sights to one of Wall Street’s shortcomings: “You don’t have to wait for a law to overhaul your pay system so that folks are rewarded for long-term performance instead of short-term gains.”
A week earlier, a former vice chairman of the Federal Reserve warned financial reform seemed to be losing steam. Alan S. Blinder, now a professor at Princeton, wrote in a Times column that this would violate a principle enunciated by White House Chief of Staff Rahm Emanuel that “You never let a serious crisis go to waste. It’s an opportunity to do important things that you would otherwise avoid.”
Many proposals to reshape the financial system and head off any similar collapse in the future have been stalled in Congress. Among them is a proposal to require that derivatives, packages of mortgages and other debts, be traded on exchanges so that their value could be publicly measured. An-other would allow regulators to close down giant corporations judged “too big to fail” in an orderly manner. Still another would have allowed bankruptcy judges to lower the payments on home loans to prevent debtors from losing them, but the banking lobby blocked it.
One of the few financial reforms that has passed is a requirement that limits credit card fees and makes companies inform consumers before raising rates. (Unfortunately, that law includes an unrelated amendment permitting loaded guns in national parks, including Acadia. Many lawmakers act faster when a powerful lobby like the National Rifle Association cracks the whip.)
The big Wall Street companies are trying to water down the proposed derivatives regulations and restrictions on executive pay. And some of the big banks are starting yet another risky venture — gambling on packages of bought-up life insurance policies.
So unless Congress acts promptly, we could soon be off on another explosive financial bubble.