Everyone, it seems, hates bankers. The president refers to them derisively as “fat cats.” The general public disparagingly wants to know why bankers got bailed out while it didn’t. Movies invariably depict bankers as cold, callous, greedy and uncaring — and that’s when they’re not outright crooks. Politicians blame the banking cabal for everything that has gone wrong with the economy.
We even have a spreading “protest” movement, Occupy Wall Street (OWS), in which amalgamations of unhappy campers gather in parks (or somewhere) to show their disdain for the financial sector (and anything else that comes to mind). Unfortunately, all this hate, while perhaps good TV, is misplaced.
Let’s get the big lie out of the way first. Bankers did not cause the meltdown; they did not create the housing bubble nor did they foster its collapse. Enough time has passed since the economic downturn for comprehensive research to uncover and identify the causal factors of the recession. Forget the president’s mandated Financial Crisis Committee’s formal report on causes. That was pure political theater in which everyone and thus no one was the blame. Since 2008, more than 30 books and numerous a la carte studies have been published establishing the flow of events, activities, policies, behavior and characters that led to the debacle.
The irrefutable conclusion from these resources: while banks facilitated the bubble with mortgage proliferation, they would not and could not have flooded the market with the $7.8 trillion in subprime loans outstanding in 2008 without the overt incentives of government guaranteed agencies, Federal Reserve interest rate manipulations and mandatory requirements of government policies. U.S. homeownership, steady at 65 percent for 30 years, climbed to 69 percent by 2007, virtually all of it acquired with subprime funding. These were the mortgages where defaults began spreading throughout the housing sector. No bank or group of banks would have created such a portfolio of weak assets without outside directives and approval.
Next, while dislike for bankers may be ubiquitous, there is no denying the need for banking services and products. But politicians capitalizing on falsely blaming bankers for the crisis have gained more control over the industry with the Dodd-Frank reform bill. Using its provisions, fees for financial services and products have come under attack. While consumers may applaud these actions, depriving banks of profitability does not make for healthy institutions. Banks have already lost billions in revenue from the crackdown on overdraft fees. New rules now place caps on debit card fees paid by merchants, further eroding profitability. Additionally, banks will have restrictions on proprietary trading, another previous source of income. Lower profits are leading to new massive layoffs in the financial industry.
None of the punishing features of the Dodd-Frank reform bill have anything to do with the causes of the meltdown. Members of the political class that engineered the housing bubble have escaped any punishment, not even demands for their public apology. We may enjoy dumping on bankers, but we’ve got the wrong villains.
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