Feature

Wall Street: Lessons of the meltdown

The titans of finance gathered to hear President Obama call for tough new oversight of the financial system.

You can say this about President Obama’s big speech to Wall Street this week, said Steve Liesman in the New York Daily News: “At least no one shouted, ‘You lie!’” Instead, the titans of finance who gathered to hear the president call for tough new oversight of the financial system merely “nodded their heads politely”—before going back to their offices to “resume opposing his reforms.” Obama chose the one-year anniversary of the collapse of banking giant Lehman to tout his proposals to prevent another meltdown of the financial industry: making the Federal Reserve the national regulator of financial institutions, and putting stricter limits on risk-taking on Wall Street. It’s no surprise that Big Finance opposes additional regulation, said the San Francisco Chronicle in an editorial. But it’s scandalous that taxpayers—who bailed out many of these firms—are still waiting for Washington to enact the reforms needed to prevent another catastrophe.

And wait they will, said Alex Berenson in The New York Times. With business interests pouring millions into opposing reform, and with Congress preoccupied with health care, few expect Obama’s regulatory package to move anytime soon. Even minor changes, such as requiring banks to disclose more about their riskier holdings, are “far from certain.” That leaves us with many of the practices that got us into this mess—from trading in unregulated derivatives to executive pay packages that reward risk but don’t punish failure. In other words, Wall Street still operates like “a giant casino,” said Eugene Robinson in The Washington Post, with the best and the brightest gambling the retirement funds of chumps like you and me. If we continue to let them, “we’ll have only ourselves to blame when the next meltdown comes.”

What you call a “casino” also goes by another name: free enterprise, said National Review Online. Obama this week kept referring to the “lessons we’ve learned” from the financial crisis, yet he seems not to have learned the most important one: “The only effective check against excessive risk-taking in the market is the prospect of failure.” Obama’s bailouts, though, “have dulled Wall Street to the prospect of failure,” and now he is proposing a massive increase in federal regulation that would distort the free market even more. If Congress is not falling in line, perhaps it’s because the American people—their heads reeling from soaring deficits and trillion-dollar bailouts—think the federal government is quite big enough, thank you.

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