Short memories

After a period of restraint, it appears big banks are rolling the dice again. Have they learned nothing?

September 15, 2009 

President Barack Obama came to New York yesterday to tout economic reform and observed with regard to the nation's financial crisis, that "storms of the past two years are beginning to break." But are the Wall Street megabanks whose reckless ways helped put the economy in peril again seeding the clouds?

There are signs. An Associated Press report notes that Goldman Sachs, JPMorgan, Chase and other big banks -- the same ones that enjoyed a taxpayers' rescue in the form of tens of billions of dollars -- can't seem to resist the siren song of taking a chance: risky bonds, packaging high-risk mortgages into securities and selling them to investors, betting big on commodities, and backing financial products that recall the good times (for some) when the high rollers ruled the street.

It was only one year ago, however, that Lehman Brothers collapsed. Absent a federal bailout of epic proportions, other big banks would have followed.

For a time, with the exception of a few tone-deaf Wall Streeters that continued to pay big bonuses, the big institutions became conservative, paying more heed to their capital-to-risk ratio, for example. But now, with a glimmer of hope in economic recovery, it appears some are breaking out the champagne glasses prematurely.

For one thing, the sturdy government regulation that Obama's administration proposed long ago has made little progress in Congress, where the big financial institutions, while publicly embracing reform, have worked through lobbyists to stall it.

Yesterday, Obama sought both to reassure Americans about the economy and to affirm his belief in regulation that would require the big banks to avoid taking risks with investments without having the capital to back them up.

He boosted the idea of a Consumer Financial Protection Agency to protect consumers and taxpayers with regard to all aspects of the economy. He wants a council that will bring all regulators together, and clear lines of authority as to who regulates what.

The president said, as he has before, that one problem that allowed the financial crisis to grow so deep is that those who were technically under federal regulation gamed the system by, in effect, picking their own rules and rule-enforcers. The result was confusion on the part of regulators such as the Securities and Exchange Commission, which appeared to have its headlights off as midnight fell on Manhattan.

Obama also spoke to critics of his plan who say it will handcuff the free enterprise system. "Common sense rules of the road," he said, "don't hinder the market, they make the market stronger."

So much of what happened before the financial collapse seemed to happen either behind closed doors or was aided by a heady atmosphere of invincibility on the part of New York's superstars. But they weren't such stars after all, and the prospect that they're going back to their old ways is unsettling. If the rescued haven't learned their lesson, the rescuers surely have.

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