Is there still time for sweeping reform?
University of Missouri Professor William Black talks with Kai Ryssdal about what kind of financial system reform we've seen so far, what changes the president is proposing, and what happens if no reform comes about.
William Black, professor of economics at the University of Missouri (monetary.org)
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TEXT OF INTERVIEW
Kai Ryssdal: The Obama administration has now been in office about eight months. That's just about twice as much time as is left until January -- as John was just saying, the president's deadline to get some kind of regulatory reform passed. So far there has been progress on credit card consumer protections, some limited mortgage relief from the foreclosure crisis.
But to get some idea of how the White House might make more reform actually happen, we've called William Black. He's a professor of economics at the University of Missouri, Kansas City. Professor, good to have you with us.
WILLIAM BLACK: Thank you.
Ryssdal: What kind of reform have we had so far from an administration that when it came into office was all economic crisis all the time back in January?
BLACK: You haven't had any substantive reform. I think that there's very little chance that there will be real reform in the next six months to a year.
Ryssdal: Well, what are we going to get then? Beyond the president's promises today of higher capital requirement for banks, that they have more money in the bank. What can we look forward to?
BLACK: I think that you're going to see a plastering over of the cracks.
Ryssdal: What might that look like?
BLACK: They'll get rid of the Office of Thrift Supervision. I think there's certainly agreement on that. There'll be a massive fight on the consumer agency. And either the administration will drop it as part of a grand compromise, or it will so weaken it that business won't perceive it as a huge threat. There's going to be a knock-down, drag-out fight about whether the Fed should be made even more powerful, with the administration trying desperately to do that but most of Congress opposed to it.
Ryssdal: How closely intertwined are some kind of more formal regulations for the financial industry and the government withdrawing from things like the bailout, the TARP, and other Fed-lending programs and those kinds of things?
BLACK: The spiel is that everything is fine, that it's not going to cost any more tax dollars. In fact, we've been able to eliminate a $250 billion reserve, he said. None of that has any basis in reality. In fact, the losses are still there. They're massive. They're particularly bad at many of the largest banks. All of those banks pose acute systemic risk if they go down.
Ryssdal: Have we missed an opportunity, do you think, to reform the financial industry?
BLACK: Yes, we've missed an incredible window of opportunity when everyone agreed that it was a crisis and that substantial, fundamental reform was necessary. The administration tries to have it both ways. It tries to say everything is fine, but we need really, really severe change. You can't have it, right? I mean, the truth is it isn't all fine.
Ryssdal: What happens, though, if we don't get some kind of substantive reform?
BLACK: You will have a continuation of the crisis. If you adopted everything in President Obama's suggested reform, none of it would have stopped the current crisis. And it's certainly not going to be passed in full. And it won't stop the coming crisis. What we've done in creating these systematically dangerous banks, where the failure of any one of them can take down the whole system, has made the coming crisis much worse. So a broad range of economists, from conservatives to progressives, are very disturbed about the path that we're following.
Ryssdal: William Black is a professor of economics and law at the University of Missouri, Kansas City. Professor, thanks a lot for your time.
BLACK: Thank you.
Comments
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09/15/2009
#1: Speck...Cue...Lay...Shun.
#2: Looks like there's no will to support the president's reform or a maximum strength reform. Well, then we get the financial system we deserve. No crying is allowed.
09/15/2009
I hope that many will listen to Professor Black's prognosis. As long as we don't do the difficult work of blocking commodities speculation, controlling interlocking board memberships, and doing away with the regulatory arbitrage that led to this debacle, we're in trouble. From what I understand, the risks were enormous--we had no way to calculate whether there would be money enough to cover the failures (there wasn't) and there was nothing to stop the risks being taken. In fact the rewards were fabulous. And they continue.
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