But while our out-of-control financial system has been bad for the country, it has been very good for wheeler-dealers, who collect huge fees when things seem to be going well, then get to walk away unscathed — indeed, often with large severance packages — when things go wrong. They don’t want regulations that would stabilize the economy but cramp their style.
And now that the financial clouds have lifted a bit, the pushback against sensible regulation is in full swing. Even the Fed’s very modest proposal to curb abusive mortgage lending with new standards is under fire, and there are worrying signs that the Fed may back down.
Success Breeds Failure
By PAUL KRUGMAN
Cross your fingers, knock on wood: it’s possible, though by no means certain, that the worst of the financial crisis is over. That’s the good news.
The bad news is that as markets stabilize, chances for fundamental financial reform may be slipping away. As a result, the next crisis will probably be worse than this one.
Let’s look at the story so far.
After the financial crisis that ushered in the Great Depression, New Deal reformers regulated the banking system, with the goal of protecting the economy from future crises. The new system worked well for half a century.
Eventually, however, Wall Street did an end run around regulation, using complex financial arrangements to put most of the business of banking outside the regulators’ reach. Washington could have revised the rules to cover this new “shadow banking system” — but that would have run counter to the market-worshiping ideology of the times.
Instead, key officials, from Alan Greenspan on down, sang the praises of financial innovation and pooh-poohed warnings about the growing risks.
And then the crisis came. Last August, as investors began to realize the scope of the mortgage mess, confidence in the financial system collapsed.
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