Nobel economist Joseph Stiglitz made some critically important observations in the Sunday New York Times. He pointed out that income disparity is a cause of the maddeningly slow recovery from the effects of the Great Recession, not merely a consequence of it. He drew parallels to the income disparity that predated the Great Depression. In my view he is correct, though there are persuasive opinions to the contrary.
The financial sector provides a crucial function to society. It accommodates the movement of funds from investors to businesses, governments and individuals who use the capital for productive purposes. If the financial sector does this efficiently, the cost to the users of capital will be close to the price demanded by investors. The financial sector will have extracted amounts for providing the “capital intermediation pipeline” that are commensurate with the service provided.
Now that we know that the president will not be someone who pledged openly to repeal Dodd-Frank, it's time to look forward to the agenda for the next four years. One thing is certain: The job of reforming Wall Street is far from finished. The most profitable investments for the big banks continue to be Washington lobbyists chipping away at reform and litigators challenging every major rule in court.
I see three topics on the agenda: Unfinished Business; Defending Won Territory; and New Initiatives. A few of the major agenda items for each are described below.
New York Attorney General Eric Schneiderman, with the support of the mortgage task force formed by the Obama administration last January and the Justice Department, has commenced the long overdue prosecution of the Big Banks for their role in triggering the financial crisis of 2008. (That is not a typo—the Justice Department has finally moved against the Big Banks.)