The Congressional Oversight Panel set up to police the reckless financial institutions aided by the federal bailout of 2008 has just released an alarming report on the foreclosure mess. It concludes that "companies servicing $6.4 trillion in American mortgages may have bypassed legally required steps to foreclose on a home," with the possible consequence that "the housing market could experience even greater disruptions than have already occurred, resulting in significant harm to major financial institutions."
The report is a reminder of how much pain is still coursing through the lifeblood of the American economy. The two great foundations of the American middle class -- jobs and home ownership -- have taken a beating not experienced since the Great Depression, with no end in immediate sight.
It is also a reminder of how little has changed on Wall Street. Three years ago, Wall Street blew up the economy, came to Washington, and begged for help. They got it, including essentially a license to print money for their own benefit. Now they are back in the black while the rest of America is drowning in red.
To be sure, bank chiefs are careful not to smile too broadly. Firms like Goldman Sachs are sitting on mountains of cash, holding back on the mega-bonuses -- for now. But things have not been so good in the nation's houses of finance since, well, ever. According to the Wall Street Journal, "Pay on Wall Street is on pace to break a record high for a second consecutive year." The era of financial restraint is over before it even began.
How could this happen? We're supposed to be the country of small businesses and start-ups and the independent, educated middle class. Instead, the folks gambling with other people's money are raking it in; the rest of us are stuck on the outside.
Listen to the Wall Street crowd and the answer is pretty simple: "We're smarter than you." Titans of finance are superstars propelled to the top by their skill at harnessing new technologies to conquer global markets. Back when he was chairman of Citigroup, rather than ex-chair of a financial ward of the state, Sandy Weill told the New York Times, "People can look at the last twenty-five years and say this is an incredibly unique period of time. We didn't rely on somebody else to build what we built."
Actually, that's sort of true: Weill didn't rely on "somebody else." He took matters into his own hands and led the lobbying charge to repeal the Glass-Steagal Act, the centerpiece of New Deal banking regulations -- regulations that, for over half a century, made the nation's repeated, devastating financial crashes merely an unpleasant memory. On his office wall, Weill put up a four-foot-plus wide plaque with his image on it and the words "Shatterer of Glass-Steagal."
The smartest investment that Wall Street made during the roaring '90s wasn't in exotic bonds or derivatives. It was in the Democratic Party, and the return was bipartisan fervor for the financial deregulation that brought our economy to its knees. But like any good trader, Wall Street knows how to diversify. And the political crash they're bringing on may be even more frightening than the economic one.
The GOP backed Wall Street during the darkest days of 2009 and 2010, when industry lobbyists valiantly battled the nefarious forces of reform that John Boehner derided to donors as "punk staffers." Democratic when Democrats seemed reliable, financial industry contributions swung to the other side of the aisle.
Loyalty has its rewards. The GOP's top officials are now promising they will do whatever they can to gut the already-compromised financial reforms of 2010. The incoming chair of the Financial Services Committee Spencer Bachus says he's concerned that regulation will mean less Wall Street employment. These are the same politicians who say we need more lay-offs of teachers, police, and first responders, more crumbling roads and bridges -- in short, less Main Street employment.
Even if the dire predictions of the oversight panel's report fail to materialize, the dislocations caused by the abusive and reckless behavior of Wall Street will be felt for many years to come. Let us hope the lost jobs, lost homes, and lost dreams do not mark a new normal, but an unfortunate bipartisan retreat from common sense.
Jacob S. Hacker and Paul Pierson are the authors of Winner-Take-All Politics: How Washington Made the Rich Richer--And Turned Its Back on the Middle Class