The financial sector is like a hydra and we need to get it under control. The bad news is that bankers have been able to get away with some unethical practices for the last decade or so. The good news is that finally American politicians are taking notice of this and are talking about what to do.
This discourse is needed now while the banks are stable to try to ensure that the their crazy actions don’t lead to yet another financial boondoggle.
Yes, the banks are back. As the New York Times’s Neil Irwin reported, employment has returned to 2007 levels; the gap between the pay of Wall Street workers and everyone else is back near record levels, and the profits of the financial sector are soaring.
This is, as Irwin notes, a glaring contrast to what occurred after the crash that led to the Great Depression in the 1930s. Then banks were shackled, tightly regulated and greatly diminished in scope and license. The result was decades without major financial crises, during which the economy boomed and the United States grew together, with inequality decreasing. Now, however, while Dodd-Frank reforms have forced some changes, the big banks are more concentrated than ever. They continue to profit from high leverage, exotic trades and very high risk. They remain too big to fail — and apparently the bankers are too big to jail.
More and more studies, including one by the International Monetary Fund, hardly a radical bastion, suggest that a bloated financial sector is bad for an economy. It generates destructive booms and busts. Its high pay entices the most creative to use their talents on financial schemes rather than in more productive activities. Its culture of greed corrupts not just Wall Street but also our politics and economy more generally.