Wall Street's destructive risk-taking practices continue unchecked
Jan. 6 (Bloomberg) — On what remains of Wall Street these days, the past year was filled with one opportunity after another to fix the myriad fundamental structural deficiencies — revealed all too painfully by the financial crisis — that continue to plague the country’s large securities firms. At year’s end, not a single one had been adequately addressed, let alone resolved.
This ongoing failure to act in the face of the worst economic downturn since the Great Depression is especially disappointing since President Barack Obama was elected, in part, on a promise to bring constructive and lasting change to the canyons of Wall Street. A few weeks after the 2008 presidential election, Rahm Emanuel, newly appointed as Obama’s chief of staff, spoke at a Wall Street Journal conference and reflected on the numerous crises — financial, energy-related and in foreign policy — that the Bush administration had left for Obama to clean up. “You never want a serious crisis to go to waste,” Emanuel said, “and what I mean by that, it’s an opportunity to do things that you think you could not do before.” The coming changes to the financial regulatory system, he added, should be based upon the principles of “transparency and accountability.”
Emanuel had it exactly right. So did Obama, 10 months later on the one-year anniversary of the collapse of Lehman Brothers, when he addressed business leaders at Federal Hall at the corner of Wall and Broad streets. “We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses,” he said then. He went on to demand “strong rules of the road to guard against the kind of systemic risks we have seen” and asked Wall Street to join in rewriting the regulations for a new post-crash epoch.
Alas, we still await the reforms that are so desperately needed to prevent the recurrence of the speculative bubbles — and their vicious unwinding — that have become all too prevalent during the last 25 years of laissez-faire regulations and unalloyed hubris and greed among many finance professionals.
Not surprisingly, as Congress dallies, Wall Street has been only too happy to return with all deliberate speed to business as usual. Only now, things are better than ever for it. The Wall Street firms that were bailed out thanks to taxpayer largesse — especially Goldman Sachs, Morgan Stanley and JPMorgan Chase — have the best of all possible worlds: little or no regulatory reform, far fewer serious competitors and an absurdly low interest-rate environment that allows them to obtain financing for close to nothing, from the Fed or from the public markets. Through arbitrage, they can then take advantage of widening spreads to reap levels of profitability unimaginable a year ago.
What is most remarkable about both pieces of legislation is just how light a touch they seem to put on the powers-that-be on Wall Street. On one hand, this is entirely predictable: Wall Street remains superb at lining the pockets of its chief congressional overseers. On the other hand, it is a bitter disappointment… Read more here.
Source: Bloomberg.com, William Cohan
William Cohan, a Bloomberg Television contributing editor, is the author of “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street” and “The Last Tycoons: The Secret History of Lazard Freres & Co.”