Analyzing the Next Financial Crisis

Here is a very good article by William K. Black, a regulator who helped clean up the S&L fiasco in the early 1990s and has been commenting on the 2008 financial crisis. The following is just the headline and first few paragraphs to tempt you to read the whole article:

Congress Threatens to Sow the Seeds of Our Next Banking Crisis

I wrote recently about the Bank of England sowing the seeds of their next banking crisis by deciding to reduce bank examinations. Spencer Bachus (R. Ala.), the incoming Chair of the House Financial Services Committee, told the Birmingham News: "In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks."

Ron Paul (R. Tex.), asked to comment on Bachus' statement, said: "I don't think we need regulators. We need law and order. We need people to fulfill their contracts. The market is a great regulator, and we've lost understanding and confidence that the market is probably a much stricter regulator."

These comments share several characteristics. First, they demonstrate that many people in positions of power have not only learned the necessary lessons from the ongoing crisis -- they have learned the worst possible lessons. Second, the comments reprise disastrous approaches that allowed the crisis to occur. Third, the comments represent the continuing triumph of ideology over facts. Fourth, the comments rely on false dichotomies that are the enemy of reasoning and good policy.

Sadly, Obama is not listening to people like Black, or Krugman, or DeLong, or Volcker. Instead, he is listening to the Wall Street bagmen: Larry Summers, Tim Geithner, and Ben Bernanke.

The problem in the US, as Black points out, is that a right wing ideology is rampant, the idea that "the market is always right" and that "government is the problem":

The U.S. and much of Europe have suffered a crisis of great proportions after they adopted deregulation, desupervison, and the de facto decriminalization of financial firms. For the U.S., this is our third major financial crisis in 20 years brought on by those triple "de's." The incoming chairs' response to these crises is increased deregulation and desupervision (and no mention of prosecuting the control frauds driving the crises).

How many financial catastrophes will it take before the people rise up and throw out the bought-and-sold politicians who are servants of Wall Street and the ultra-rich and not public servants of a state of the people, by the people, for the people?