Earlier this month, Salon ran a hefty excerpt of Barry Eichengreen’s new book, “Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History,” which examines the ways that Wall Street managed to minimize the structural and regulatory changes that many had hoped would follow after the near-collapse of the financial system.
This excerpt focuses on comparisons between the political and regulatory response in 2008 and those taken after the Great Depression; while Eichengreen clearly feels we fell far short this time, he also tells the tale in a way that helps make sense of some of the factors—beyond Wall Street power-plays—that contributed to the lackluster response. He notes that several of the proposed banking reforms were vehemently opposed by smaller community banks, which apparently felt that their smaller operations would be overly burdened by new requirements aimed at cooling the excesses of banking giants. And he looks closely at many of the particular elements of what he calls “Obama’s competent response,” acknowledging the fiscal and political constraints that stood in the way of some of the more vigorous proposals to ease the burdens of homeowners and Main Street.
The whole piece is worth a read; this concluding paragraph captures its essence:
The experience of the 1930s suggests that radical reform is possible only in the wake of an exceptional crisis. Absent that crisis, business as usual remains the order of the day, and radical reform that threatens to disrupt such business is ruled out. An exceptional crisis halts such business for a time. The problem starting in 2009, if it can be called a problem, was that policy makers managed, just barely, to prevent a 1930s-style crisis. There was still business as usual to conduct. Radical reform that interfered with customary banking practices could be criticized as jeopardizing the recovery then slowly getting underway. This left only strengthening the existing system, as opposed to replacing it. And the incremental nature of the reform process, which unfolded slowly as new rules implementing Dodd-Frank directives were proposed by the regulators, allowed concentrated interests, notably the bank lobby, to re-form and mobilize in opposition.