Letting Bankers Walk

While the Wall Street banking industry bears enormous responsibility for the financial market collapse of 2008, which continues to plague our nation (and global economies), Wall Street executives and the banking industry appear to remain “untouchable.” The Obama administration has been reticent to force responsibility onto the industry (perhaps due in part to massive campaign contributions), and U.S. financial policy now seems to have evolved into a “letting bankers walk” position. This policy position avers that cracking down on banks would either slow a recovery of the housing market or would undermine the broader prospects of national fiscal recovery. Nobel Prize winning economist Paul Krugman argues however, that these banker-friendly policies are not the answer to resolving the banking industry’s past indiscretions, and neither will this policy assist in healing the U.S. housing condition. Per Krugman “Ever since the current economic crisis began, it has seemed the five words sum up the central principle of United States financial policy: go easy on the bankers.”

Krugman argues that in bailing the banks out of the mortgage crisis quickly (and letting reckless executives off unencumbered), the country has seen an increase in foreclosures, creating more available homes on the market, and with the increased supply the housing market will see lower prices. A market stabilization is unlikely in such a scenario. Further, Krugman asserts that the banking industry has recovered since the scare of 2008-09, based in part on its hoarding of capital, and with the banking industry recovered, it makes little sense to continue to treat the banks with kid gloves, rather than making them responsible for their roles in the meltdown. The economy continues to falter based on the massive amount of mortgage debt that continues to emanate from the housing bubble.

Rather than adopt policies that offer significant mortgage relief in an effort to correct the continuing housing crisis, the Obama administration instead follows a policy that refuses to make bankers responsible for their complicity in the continuing malaise. Krugman believes that the recovery will remain elusive if these policies continue.