The Washington Post reports on how Washington is playing an increasing role in regulating Wall Street as a result of the bailout. This is only part of the picture. Wall Street has long run to Washington for help in increasing its profits. The most notable recent case was in 2005 when Wall Street got Congress to change the bankruptcy law, making it more difficult for borrowers to escape their debts. Ignoring the sanctity of contracts, Congress chose to apply the new bankruptcy laws retroactively, so that they would apply even to debts incurred under the former set of bankruptcy laws. In the late 90s, Wall Street went to Congress to repeal the Glass Steagall Act which separated commercial and investment banking. This separation prevented banks from speculating with government insured deposits. Now, banks like Goldman Sachs openly speculate with money borrowed with an FDIC guarantee. Wall Street also has to go to Washington to ensure its ability to manipulate contracts to the disadvantage of its customers. Banks now make much of their profits on fees that they charge to their credit card customers and account holders. The banks routinely press the bounds of legality in concealing these fees in fine print and confusing language. With their increased dependence on these fees, the banks desperately need Washington's support for actions that could otherwise land them in jail. So, even without the bailouts we can anticipate that the banks presence on Wall Street will grow. Wall Street has proven to be far more effective at making profits through manipulating government than through the market.
--Dean Baker
