If you watched the recent Presidential debates or the Republican and Democratic conventions, you might have gotten the impression that the practices on Wall Street that led to the worst financial crisis since the Great Depression have magically been fixed. The candidates certainly aren't talking about them. Aside from Senate candidate Elizabeth Warren, politicians are silent on a topic that still poses a real risk to people's economic futures: a financial system rigged against the ordinary citizen in favor of the banks, one that allows the gains to be privatized to an elite few, with the downside risks socialized to everyone.
Four years after the crisis and two years after the passage of the Dodd-Frank "landmark financial reform" legislation, fewer than one-third of the regulations have been finalized, and more than three-quarters of the required deadlines have been missed. The Wall Street lobby has spent more than $300 million trying to kill--or insert loopholes into--key rules that would ensure greater transparency in derivatives and bar banks from betting against their own customers. And five of the nation's largest banks are even bigger than they were before the financial meltdown. Unfortunately, the politicians and regulators are buckling. There is a leaking dam, and what lawmakers and regulators have done so far is put a Band-Aid over it.
Who gets hurt when the revolving door between Washington and Wall Street starts turning and both Arthur Levitt, the former chairman of the Securities and Exchange Commission, and Jake Siewert, a former adviser to Treasury Secretary Tim Geithner, go work for Goldman Sachs? Or when Minnesota Governor Tim Pawlenty leaves politics to head one of the most powerful lobbying groups in the country? Or when big banks like JPMorgan and Goldman Sachs fund the campaigns of the very people who are supposed to be making laws and regulating them? You get hurt, because your lawmakers get influenced, their objectivity gets compromised, and they lose their ability to ask the hard questions and fix the problem. For example, if JPMorgan hadn't lobbied so hard for a Dodd-Frank loophole around proprietary trading, it might not have lost $6 billion on reckless trades that it could then claim as a hedge, allowing those who ran the group to leave with golden parachutes.
When Wall Street CEOs are hauled in front of Congress--as Lloyd Blankfein was amid the SEC fraud investigation of Goldman Sachs that ultimately resulted in a half-billion-dollar settlement with the government in 2010--they try to argue that clients are big boys and that companies have no duty to stop clients from getting into trouble. But think about this. Whose money is being played with?