Banks Returning to Normal?

This article on Wall Street in the NYT demonstrates that this administration has not done what was needed to resolve the problems in the financial sector. The crisis is only going to happen again. And next time, the blame will rest squarely on the shoulders of Barack Obama.

One year after the collapse of Lehman Brothers, the surprise is not how
much has changed in the financial industry, but how little.

Backstopped by huge federal guarantees, the biggest banks have
restructured only around the edges. Employment in the industry has fallen just 8
percent since last September. Only a handful of big hedge funds have closed. Pay
is already returning to precrash levels, topped by the 30,000 employees of
Goldman Sachs, who are on track to earn an average of $700,000 this year. Nor
are major pay cuts likely, according to a report last week from J.P. Morgan
Securities. Executives at most big banks have kept their jobs. Financial stocks
have soared since their winter lows.

The Obama administration has proposed regulatory changes, but even
their backers say they face a difficult road in Congress. For now, banks still
sell and trade unregulated derivatives, despite their role in last fall’s chaos.
Radical changes like pay caps or restrictions on bank size face overwhelming
resistance. Even minor changes, like requiring banks to disclose more about the
derivatives they own, are far from certain.

Coming on the same weekend as the 11th-hour bailout of the giant
insurer American International Group, and the sale of Merrill Lynch, Lehman’s
failure was the climax of a cataclysmic weekend in the financial industry. In
the days that followed, nearly everyone seemed to agree that Wall Street was due
for fundamental change. Its “heads I win, tails I’m bailed out” model could not
continue. Its eight-figure paydays would end.

In fact, though, regulators and lawmakers have spent most of the last
year trying to save the financial industry, rather than transform it. In the
short run, their efforts have succeeded. Citigroup and other wounded banks have
avoided bankruptcy, and the economy has sidestepped a depression. But the same
investors and economists who predicted, and in some cases profited from, the
collapse last fall say the rescue has come at an extraordinary cost. They warn
that if the industry’s systemic risks are not addressed, they could cause an
even bigger crisis — in years, not decades. Next time, they say, the credit of
the United States government may be at risk.