Banks should not be allowed to lobby regarding the regulatory reforms made necessary by their actions. The public bailed them out a few short months ago and it is egregious that the banks still think they can take the political positions that they do to try to block reform.
James Galbraith, currently the Lloyd M. Bentsen Chair in government and business relations and professor of economics at the LBJ School of Public Affairs at the University of Texas at Austin speaks on these and other issues on Bill Moyers:
“And that’s the point about the crisis, is that it could have been prevented. The people in authority two, three, five years ago, knew how to prevent it. They chose not to act, because they were getting a political and an economic benefit out of the speculative explosion that was occurring. ”
JAMES GALBRAITH: They let all of this run, because they were getting a superficially stronger economy out of it. The ownership society, all that was a scam, basically, designed to lure people who could never afford these mortgages into accepting them. And yes, I think they, any rational person, certainly people in the industry, knew that this was not going to last. There was a little industry code, I’ve learned, IBGYBG. “I’ll be gone. You’ll be gone.”
BILL MOYERS: Really?
JAMES GALBRAITH: Yeah.
BILL MOYERS: The industry being the securities industry?
JAMES GALBRAITH: Well, and the mortgage originators and the bankers, generally.
BILL MOYERS: But that’s criminal fraud.
JAMES GALBRAITH: Oh sure. There was a huge amount of it. The Bush administration did not actively investigate the fraud that they knew, that the FBI knew was occurring, from 2004 onward. And there will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that’s a process which needs to get underway.
BILL MOYERS: The perplexing question to me is whether or not you can reform a system that is so infiltrated by the money from the people who are benefiting from what’s going on, who have a vested interest, and use their money to promote that vested interest to make sure nothing changes.
JAMES GALBRAITH: I think you can. I think the law is powerful. I think you cannot legalize financial fraud. You cannot fully conceal the tracks of financial fraud. You have to put the resources in to uncover it. You have to prosecute it. You have to give appropriate punishments, but we have a system, in this country, for doing that. It is a question of a decision to use the judicial resources that we have, to clean up the system.
BILL MOYERS: Timothy Geithner wants to provide a super-regulator to keep those big five firms in line. Will that work?
JAMES GALBRAITH: No, it will not work. The super-regulator will not be able to control those institutions. And probably will make all of the mistakes that the, if it’s the Federal Reserve, that the Federal Reserve made in the run-up to the last crisis
JAMES GALBRAITH: Well, the fact that there is lobbying going on, from financial institutions that were only yesterday bailed out by the taxpayer, is just egregious. It’s an outrage. And I know the administration has said this. And I applaud them for having said it, but the political position of the banks, to me, is just totally unacceptable. The public was obliged to rescue them. It is not their role, now, to be trying to tell Congress what shape and direction of the reform should take. This really should be out of their hands entirely.