Krugman: Letting Bankers Walk

[Derechos]

Ever since the current economic crisis began, it has seemed that five words sum up the central principle of United States financial policy: go easy on the bankers.

This principle was on display during the final months of the Bush administration, when a huge lifeline for the banks was made available with few strings attached. It was equally on display in the early months of the Obama administration, when President Obama reneged on his campaign pledge to “change our bankruptcy laws to make it easier for families to stay in their homes.” And the principle is still operating right now, as federal officials press state attorneys general to accept a very modest settlement from banks that engaged in abusive mortgage practices.

Why the kid-gloves treatment? Money and influence no doubt play their part; Wall Street is a huge source of campaign donations, and agencies that are supposed to regulate banks often end up serving them instead. But officials have also argued at each point of the process that letting banks off the hook serves the interests of the economy as a whole.

It doesn’t. The failure to seek real mortgage relief early in the Obama administration is one reason we still have 9 percent unemployment. And right now, the arguments that officials are reportedly making for a quick, bank-friendly settlement of the mortgage-abuse scandal don’t make sense.

http://www.nytimes.com/2011/07/18/opinion/18krugman.html?ref=opinion

[kenny blankenship]

1. Really, it's THEIR country. You just happen to be living in it. (And bailing them out.)

Same thing with the Obama Administration. If you don't like how it serves bankers, go buy an Administration of your own if you can. And let those who have enjoy theirs in peace.

[ProSense]

2. Interesting.

<...>

What about the argument that getting tough with the banks would threaten the overall economy? Here the question is: What’s holding the economy back?

It’s not the state of the banks. It’s true that fears about bank solvency disrupted financial markets in late 2008 and early 2009. But those markets have long since returned to normal, in large part because everyone now knows that banks will be bailed out if they get in trouble.

The big drag on the economy now is the overhang of household debt, largely created by the $5.6 trillion in mortgage debt that households took on during the bubble years. Serious mortgage relief could make a dent in that problem; a $30 billion settlement from the banks, even if it proved more effective than the government’s modification program, would not.

<...>

[jwirr]

3. It's not just mortgage debt. It is credit card debt also. These banks

are making profits off of bad debt and as long as they are allowed to do that they will continue to sucker people into thinking they can borrow for anything they want. I think the banks should be forced to downsize and localize.