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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsHow the Wall Street weasels won: Elizabeth Warren, Paul Krugman and the 1 percent’s ...
http://www.salon.com/2015/01/04/how_the_wall_street_weasels_won_elizabeth_warren_paul_krugman_and_the_1_percents_desperate_battle_to_save_themselves/How the Wall Street weasels won: Elizabeth Warren, Paul Krugman and the 1 percents desperate battle to save themselves
Like the Roosevelt administration before it, the Obama administrations response to the crisis entailed much more than just the use of fiscal and monetary tools. It included an impressive array of initiatives targeted at specific sectors, from housing and motor vehicles to financial services. Few if any of these, however, began to approach, in ambition or achievement, the initiatives launched under the New Deal.
In particular, the Obama administrations attempts to provide distressed homeowners with mortgage relief were a pale imitation of what was achieved by the Home Owners Loan Corporation of the 1930s. Changes in the nature of housing finance in the intervening period made it more difficult to restructure mortgages without imposing large losses on either the banks or taxpayers, something that was both a political and an economic nonstarter. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 did not begin to rise to the ambition of the Glass-Steagall Act of 1933 or the Securities Exchange Act of 1934. By more successfully deploying their monetary and fiscal tools, policy makers this time prevented the worst. And by preventing the worst, they allowed the vested interests that benefited from the prevailing financial system to regroup. They relieved the pressure for root-and-branch reform.
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Residential construction had accounted for 6 percent of U.S. GDP at the peak in 2005; its share now fell to barely 2 percent. Construction activity always falls sharply in a recession, to be sure. But what was worrisome now was how weak residential construction continued to act as a drag once the economy began to recover.
To explain the failure of construction to recover, observers pointed to the outsized building boom prior to 2006 and the exceptional severity of the recession, which drained the pool of potential homebuyers. Problems in the banking system and securitization markets made it hard to finance construction of new subdivisions and apartment buildings. Mortgage underwriters, having embraced lax standards before, swung now to the other extreme. Regulators tightened their scrutiny of lending practices.
daleanime
(17,796 posts)Octafish
(55,745 posts)More from the OP:
Then there is what Dodd-Frank failed to do. It did not eliminate too-big-to-fail, either by breaking up the banks or by prohibiting them, Glass-Steagall style, from making risky investments. Instead, the six biggest banksJPMorgan, Goldman Sachs, Bank of America, Citigroup, Wells Fargo, and Morgan Stanleywere allowed to grow 37 percent larger by the end of 2013 than in 200809, at the height of the crisis. Although Dodd-Frank gave the FDIC orderly liquidation authoritythat is, the power to impose losses on a failed institutions shareholders and creditorssimply bestowing that power doesnt mean that the agency will be prepared to use it, especially if the result will be market disruptions and contagion to other financial institutions. The fact of large financial institutions operating across borders means that orderly resolution will require close cooperation between courts and regulators in a number of countries, in order to avoid a disorderly scramble for assets like what followed the failure of Lehman Brothers. Simply bestowing orderly resolution authority on a U.S. agency does nothing to advance this.