Marketplace Live: What a difference four years does not make
Subprime Meltdown. The Collapse of Lehman Brothers. Too Big To Fail. Those headlines dominated the global news in 2008. But how are they playing out this election year?
What a difference four years has not made.
That was one of the conclusions from a special live taping of APM's Marketplace and the BBC's Business Daily's World Service at New York Public Radio's Greene Space this week. Marketplace's Kai Ryssdal and the BBC's Justin Rowlatt moderated a panel discussion titled: "Are, we the people, to blame: Do we get the banks we deserve?"
THE PANEL: Host Kai Ryssdal (far right) and the BBC's Justin Rowlatt (far left) lead a panel conversation with former New York Governor Eliot Spitzer, author Bethany Mclean, former Bain Capital partner Ed Conard, and RBC Wealth Management CEO John Taft.
Subprime Meltdown. The Collapse of Lehman Brothers. Too Big To Fail. Those headlines dominated the global news in 2008.
Four years ago, Americans voted for a new president against the backdrop of a deep recession, a crisis in capitalism, and a debate over who should share the blame.
Four years later, it seems a week doesn't pass without the world's banks being in the news for behaving badly. But let's face it: we like the banks when they make money. They pad our pensions, finance our mortgages and keep our small businesses growing. Still, we don't like them when they make too much money, they don't lend their money, or when they lose that money. Shareholders vote against CEO bonuses, politicians call for regulation, Wall Street gets occupied.
So where are we in 2008. Do we get the banks we deserve? Have we wasted the financial crisis of 2008?
Four years later, the five biggest banks in the United States are almost twice as large as they were a decade ago. According to the Federal Reserve, the five banks - Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Goldman Sachs - have assets that equaled more than 50 percent of the United States economy. That was at the end of 2011, more than a 10 percent increase than five years ago.
John Taft, the CEO of RBC Wealth Management in the United States, explained that the roots of the financial meltdown still remain.
"The problems that caused the crisis have yet to be fixed," Taft said on the panel, arguing that the blame does not solely reside with the banks. "There were always be crises. There will always be bubbles. The trick is to contain them so they don’t end up bringing the system down."
Many parties were at fault in creating an unbalanced system. And part of the issue with the financial crisis is a misplaced notion of what caused it, according to Bethany Mclean, the author of the book, “All the Devils Are Here.”
“One of the great myths about the crisis is that it was a myth of homeownership," Mclean said. "Everybody says this is what happens when you put people into homes and they can't afford to pay them back. This was never about homeownership. Most risky loans that were made were so-called cash out refinancing so the people could withdraw equity from their homes in order to spend it."
That comes with the territory of being a consumer-driven economy. She said that blaming the banks entirely misses the complexity of consumer spending. "There are a lot of people who say let's take apart the big banks," Mclean explained. "But what should we replace it with?"
She added that one possible change is to revise the bonus system in the financial industry. Eliot Spitzer, former New York Governor and now host of Viewpoint on Current TV, picked up on this point.
“We have a financial system that became more and more geared toward short term returns because of the bonuses and other compensation systems were determined,” Spitzer said.
Former Bain Capital partner Ed Conard also attended the panel. He is the author of the book, "Unintended Consequences: Why Everything You’ve Been Told About The Economy Is Wrong."
"I think we have to recognize that banks make profits for taking risks," Conard said. "Our leaders have a responsibility to not demagogue the issues and to explain to the American people how the financial system works and what the issues are."
You can hear the entire discussion in the podcast. Listen in the player above.