President Obama called a meeting in Washington with top Wall Street bankers in order to lean on them to act more modestly in granting bonuses and more generously in granting loans.
The chief executive of JP Morgan traveled from New York to Washington—a short 200-mile hop—for this high-level meeting. But those from Goldman Sachs, Morgan Stanley and Citigroup failed to show. They claimed that they could not make it due to weather conditions, even though there are many ways of getting to Washington, including by the fast Acela train, so they opted to connect via speakerphone from Wall Street. As suggested in today’s New York Times report on this meeting, it is reasonable to presume that the incentives for bank executives to show up have dramatically shifted since the process to repay the government got underway.
Indeed, as hinted in the Times article, the no-show incident is perhaps a metaphor about who is increasingly taking charge; how the power is shifting again from Washington to Wall Street. It is almost as if the global financial crisis never happened, or even if it did, as if Wall Street’s excessive influence over policy and regulations had nothing to do with it.
My own analysis of ‘legal corruption’ and the capture of the state and its regulatory regime started years ago (for the U.S., with data dating back to 2004, as seen here).
Given the euphoric economic and financial times earlier this decade, it was almost excusable that little attention was paid to the problem. Now it should be different. But increasingly there is the impression that insufficient attention is being paid to the challenges posed by the influence of vested interests, money in politics, legal corruption and capture.
Admittedly, the extent of legal corruption and capture may have declined somewhat from the abnormally high levels a few years ago that contributed to excessive risk taking and the financial crisis. But the incipient signs are worrisome. Congress and Treasury have taken some initiatives in putting forth select reform proposals, yet higher priority and more focus is required.
In fact, in terms of the metaphor-intensive no-show incident of yesterday’s bankers at the White House, one wonders whether attendance in person by the missing bankers would have made a material difference. Did the White House actually believe that exhortations and admonitions would really make a dent on the bankers’ actions?
Unless incentives and regulations are revamped, and the power of the Wall Street elite (and of the very large financial institutions) to shape financial regulations and practices is drastically curtailed, exhortations will go nowhere. Yet the proposed reforms are thus far only partial, and implementation is lagging. In the meantime, lobbyists are already hard at work to mitigate the likelihood of any meaningful regulatory reform concerning large financial institutions.
I still believe that at some level President Obama, together with a few of his key advisers (and some politicians in Congress), still thinks that serious reforms needs to take place as he did long ago. Of course, action is needed more than words, even in the face of opposition by political interests.
More needs to be done in terms of reducing the influence of very large institutions over the financial system, in terms of improving corporate governance and integrity, reforming the risk-rating industry (including allowing entry), managing systemic risk, protecting consumers, and enhancing oversight and transparency of financial institutions. A number of proposals from different quarters are on various tables. Yet leadership and mettle from the very top in Washington is urgently required to push for priority financial sector reforms.