Tim Fernholz on how financial reform seems to be proceeding apace without undue influence from the banks.
Last year, in a landmark essay, economist Simon Johnson observed that the dynamics of the financial crisis made the United States look more like an emerging market economy, with all the rampant crony capitalism and corruption that entails, than a developed country with an efficient, modern financial market.
"Elite business interests -- financiers, in the case of the U.S. -- played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse," Johnson wrote. "More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them."
A year later, with the government poised to overhaul the financial system, this analysis doesn't seem quite correct, or, if you will, Congress looks likely to prove it decisively wrong.
While the bailouts of 2008 remain firmly fixed in everyone's mind as an object lesson in least-worst-choice policy-making, the financial rescue has been cheaper than almost anyone dared imagine, and a special tax proposed by the Obama team is likely to make the cost zero. Since the president came to office, more money has been spent to protect average citizens than to aid the financial sector. In the next few weeks, our legislature has the opportunity to make sure that we have a much safer banking system and a diminished chance that bailouts will ever occur again.
