Days of plain, boring banking are over
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TEXT OF INTERVIEW
Kai Ryssdal: We knew last week that President Obama was going to sit down with CEOs of some of the big Wall Street banks today. We even knew what his message was going to be coming out of it: That banks need to lend more to small businesses to get the economy going again. What we and a whole lot of other people are still wondering is why so much of what happens in this economy is still tied up with Wall Street banks after all we’ve been through. And when that might change. Douglas Elliott is a fellow at the Brookings Institution. Doug, it’s good to have you with us.
Douglas Elliot: Thank you.
Ryssdal: First of all, about the president’s meeting with the bankers today, he came out and he said they had a candid chat, which is usually diplospeak for fairly rough words being said, fairly straightforward words. Do you have any sense that the banks are chastened at all by the events of the last 18 months?
ELLIOTT: Of course the banks are chastened by the last 18 months. They don’t want to do it again. They do actually favor a substantial amount of regulatory reform. They’re just doing everything they can to shape it so that it allows them to be as profitable as possible.
Ryssdal: You know, banking in this country used to be kind of boring, right? As long as we’re talking about the risk/reward curve. Banks took in money, they lent out money, it was fairly straightforward. And there were some calls a year ago for us to get back to plain, old boring banking. Boring but safe. Is that ever going to happen again?
ELLIOTT: It’s not going to happen again. We’re in a much more complex world now. We’re in a globalized world. And we’re in a world with a lot better information systems. And part of what that means, for example, the information systems, is markets allow you to find the best match between whoever wants to borrow the money, and whoever has the money to lend. So as we’ve moved more towards markets and the complexity that comes with a global world, it’s reached the point where that good, old-fashioned bank just wouldn’t be able to provide the services that many of our companies and even individuals need.
Ryssdal: You know you mentioned regulation a moment ago, and the president talked about this in his remarks this morning. The bankers say, on the one hand, they are interested in more regulation, but their lobbyists on Capitol Hill are doing everything they can to make sure that the new financial regulations that come out of Congress are friendlier to the banking industry. Does that match for you?
ELLIOTT: Absolutely. Look, this is an important sector of the economy. It’s a very complex thing to regulate. Now, I do worry that we have too many of the big lobbying guns on the side of the financial institutions. But on the other hand, you have tremendous anger against them right now.
Ryssdal: Is that anger justified, do you think? The anger that the American public still has, I believe, against the banking industry, is that justified?
ELLIOTT: There is tremendous anger in the public mind against the bankers, there is no question. And of course, to some extent it is justified. Bankers were a big part of what blew up the world. There’s plenty of reason to be angry.
Ryssdal: Let me ask you a question about the psyche, right? Because for the past, I don’t know, six, eight, 10 years, the American investor has been incredibly optimistic. We have bought shares in a lot of companies. We have maximized the potential of our houses. All those things. Were the banks doing the same thing?
ELLIOTT: Yes, it was individuals. It was people on Wall Street. I think the reason this blew up so badly is we had 25 pretty good years — from 1982 until about now. You could hardly avoid making money if you took risks.
Ryssdal: On the theory that we’ve cured the optimism and the laxity with these new regulations. How long do you think it’s going to be before people aren’t leery of banks anymore?
ELLIOTT: I think in a few years people won’t worry too much about banks. And when you get at 10, 15, 20 years, I think you’re going to find another blow up because everybody gets too optimistic again.
Ryssdal: Douglas Elliott, fellow at the Brookings Institute. Doug, thanks a lot.
ELLIOTT: Thank you very much.
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