Those who believe investment banking risks have been tamed should think again, says public policy professor Robert Reich, who has served in three administrations.
"Close your eyes and you could be back in the wilds of 2007," Reich writes in the Financial Times.
"Bankers are still making wild bets, still devising new derivatives, still piling on debt.”
“The big banks have access to money almost as cheaply as in 2007, courtesy of the Fed, so bank profits are up and bonuses as generous as at the height of the boom."
In fact, Reich notes, the only difference between 2007 and now is that the Street’s biggest banks know they are “too big to fail” and will be bailed out by taxpayers if they get into trouble — which gives them every incentive to make even riskier bets.
Worse yet, though President Barack Obama plans to charge banks for the cost of the bailout, that’s not real reform — and the “Wall Street Reform and Consumer Protection Act” passed by the House effectively guarantees future Wall Street bailouts.
“The bill authorizes Fed banks to provide up to $4,000 billion in emergency funding the next time the Street crashes,” Reich points out.
“That is more than twice what the Fed pumped into financial markets last year.”
While most companies pay bonuses from profits, on Wall Street, they're paid out of revenues, Slate economics columnist Daniel Gross observes.
However, even as the investment banks took their shares public, they exposed the broader public to their gains and losses, but the compensation model didn't change.
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