Too Big to Fail Banks Certainly Have Not

  • Print

Fair warning – the following may make you sick.

This week the Federal Reserve of St. Louis released a report estimating that Americans on average have recovered only 45% of the wealth they lost during the recession and bear market in stocks. The report notes that much of the recovery in ‘overall’ wealth is thanks to the stock market’s recovery to its previous peaks, and thus is concentrated in the holdings of wealthy families. The report concludes that, “Considering the uneven recovery of wealth across households, claims that the financial damage of the crisis and recession has largely been repaired are not justified.”

A recent report from the Pew Research Center reached a similar conclusion. It notes that the average American’s biggest investment is their home with smaller amounts in 401K’s and mutual funds, while the wealthy have a large percentage of their net worth in stocks and other financial holdings. And the S&P 500 has grown in value by 148% since its low in 2009, while in spite of the improvement in home prices of the last year or so, home prices are still down 28% from their previous peaks.

Real estate tracking service Zillow reported last week that 25.4% of U.S. home-owners with a mortgage are still ‘underwater’ on their mortgages. That’s five years into the recovery from the 2008 financial meltdown, and on top of the millions who outright lost their homes to foreclosure or already sold at large losses.

But news is not bad for everyone.

This week the Federal Deposit Insurance Corp (FDIC) reported that U.S. banks posted an all-time record $40.3 billion profit for the first three months of this year. The results topped the previous record set in 2007, prior to the 2008 financial meltdown.

So, the folks that brought on the financial crisis in the first place, and had to be bailed out by tax-payers, have not seen their profits merely recover to some degree, but are making record profits, while according the Fed report Americans on average have recovered only 45% of the wealth they lost, and according to Zillow 25.4% of home-owners with a mortgage are still ‘underwater’.

However, there is something even more disturbing.

We were promised financial reforms that would curb the greed of those controlling the nation’s finances, regulations that would prevent such massive abuse from recurring in the future.

How is that working out?

Over protests from Wall Street, and considerable lobbying that resulted in watering down its requirements, the Dodd-Frank financial reforms bill, originally proposed in June, 2009, was finally signed into law in July, 2010. Almost three years later it has still not been fully implemented.

And now both Democrats and Republicans seem to be siding with Wall Street’s lobbyists in efforts to roll back still more parts of the regulations.

The latest move in that direction is House Rule 1062, the ‘SEC Regulatory Accountability Act’, passed two weeks ago by a 235-161 vote in the House, and now moved along for consideration by the Senate.

It is aimed at forcing the Securities & Exchange Commission (SEC) to be even more friendly toward the industry it regulates than it already is. Among its requirements are that the SEC will have to take the costs to Wall Street firms and banks into consideration when placing rules and restrictions on them, and if they don’t take Wall Street’s suggested versions of rules, to explain why they did not.

Wall Street firms and their lobbyists who worked hard to water down the regulations and rules already imposed, are now working to make it difficult to implement the rest of the Dodd-Frank reforms.

The promised regulations were supposed to protect those who were abused by the previous lack of regulations, and have yet to recover from their losses.

Those working to roll back and soften the new rules, say they are too harsh and will prevent Wall Street firms and the nation’s large banks from regaining their footing.

Did I mention that the Federal Deposit Insurance Corp (FDIC) reported this week that U.S. banks posted an all-time record $40.3 billion profit for the first three months of this year, topping the previous record set in 2007, prior to the 2008 financial meltdown.

However, investors and the public, who were so up in arms immediately after the financial meltdown, loudly demanding of Washington and the regulators that something be done, no longer care.

The long historical pattern after previous meltdowns, most recently the 1987 crash and the 2000-2002 market plunge, is that the abused public is immediately angry and not going to take it anymore, demanding reforms. But all Wall Street has to do is stall and bide its time. Once recovery is underway and investor and consumer confidence is rising, the former anger and demands for reform are forgotten, and soon enough the rules can be rolled back - remember the repeal of the ‘uptick rule’ and the Glass-Steagall Act - and no one cares.

History is repeating. Wake up America and pay attention!

CLICK HERE to subscribe to the free weekly Best of Financial Sense Newsletter .

About Sy Harding

Quantcast