Wall Street Reform and Freefall,Its Aftermath

According to Stiglitz(Freefall),the reckless lending of the financial sector,fed the housing bubble which eventually burst.In October,2007,President Bush was still ignoring the housing market falling to a fourteen year low.He said it was just a ripple and the economy was strong and resilient.In December of 2007, the banking and real estate sectors continued to worsen and they economy went into a recession.Bush finally accepted the fallen economy and passed a $168 billion tax cut in February of 2008 to help the economy and consumption.By October,2008,Bush still was optimistic and stated he knew what the problems were and we have the tools to fix them.At that time 1.8 million jobs were lost and 6.1 million Americans were working part- time.The Dow Jones average was down 24%.Bush turned to a limited set of tools.He refused to help homeowners,unemployed and didn't increase government expenditure or call for another tax cut.His administration focused on throwing money at the banks but struggled to find a way to restart lending.Finally, Bush rushed to bailout the banks with TARP($700 billion) while ignoring the million of foreclosures around the country.

The Presidential campaign was in full swing at this time.Both candidates kept it simple and didn't delve into the root causes of the meltdown.Stiglitz writes one of the problems with recovery was the lack of global aggregate demand due to the saving pattern of developing countries around the world. We couldn't get out of the recession because countries weren't buying our exports.With the increase of pink slips and debt problems, Americans also couldn't consume like they did in the past.The Obama administration continued Bush's conservative approach when he tackled the recession(Summers,Geitner and Bernacke).The stimulus bill,according to Stiglitz,was Obama's first achievement but it only prevented things from getting worse.Many economics feel it was too small for full recovery but politics got in the way.Stiglitz compared the stimulus approach to the Powell doctrine in warfare...attack with decisive force and don't hold back extra ammunition.Stiglitz sees Obama as conservative,lacking vision and said little about the changes in the financial system and how that system might function.Without a vision, the financial sector might seize the reform process and leave it more fragile the next bubble occurs.

Obama did get the Wall Street Reform and Consumer Protection Act passed in 2010.This is a list of some of the major accomplishments of that act.

1. Stronger protections for consumers against unfair credit card practices like rate hikes for existing credit card balances.
2. Mortgage brokers will be prohibited from making higher commissions by selling mortgages they know consumers can’t afford.
3. Free annual credit scores so people can stay on top of their finances. [Clarification: free credit scores are available if you receive worse terms on a loan because of something on your credit report, or if you are rejected.]
4. No more taxpayer-funded bailouts. If a company can’t make it, it will have to liquidate. 
5. Greater input by company shareholders over how much a CEO gets paid.  And companies’ compensation boards are now required to be truly independent.
6. Brokers who offer investment advice will have to act in the best interests of their customers, not their own financial interests.
7. Financial firms won't be allowed to grow so large that if one fails, it will affect the entire financial system. 
8. There will be one agency whose sole job is to make sure that consumers get the protections they deserve and to set clear rules to hold banks, mortgage companies, payday lenders, and credit card lenders accountable.
9. Businesses can't be charged extra fees for debit card “swipe fees” that exceed the cost of processing transactions.

I know many individuals that I read have stated that the financial sector will find ways to get around this act but at least it's a start in the right direction.More to come down the road from Stiglitz and "Freefall".