However Democrats are now saying these operations are too big and they should not be taking investment risks. The government has already forced the resignation of Ken Lewis, former CEO of Bank of America, regarding supposed misdeeds related to the acquisition of Merrill Lynch. He stepped in to save a failing Merrill Lynch at the government’s behest and then gets blamed when the losses of Merrill Lynch turned out to be worse than anyone estimated. Now they don’t want Bank of America to benefit from the some of the assets that Merrill brought to the table.
In another recent Times article, Mr. Paulson states that the proposals by the Obama Administration barring banks from trading activity would not have prevented the collapse of Fannie Mae, Freddie Mac, Lehman Brothers, AIG, Washington Mutual, or Wachovia. In other words: thanks for saving the economy in 2008 but now we need a whipping boy, so bankers – you are it. No wonder few people trust politicians.
Mr. Volcker never mentions reform of governmental entities and laws that were central to the crisis that came to a head in 2008 and still lives with us. There is no suggestion of revamping the Community Reinvestment Act that requires banks to make risky investments, and the words Fannie Mae and Freddie Mac are nowhere to be found in his article. It was as if all problems were created by private industry, with none of it created by naïve and dangerous government policies.
A perfect example of the denial of government responsibility centers on Andrew Cuomo, currently Attorney General of New York and gubernatorial hopeful, who has sued Bank of America. While Secretary of Housing and Urban Development from 1997-2001, in an attempt to encourage more home ownership, he directed Fannie Mae and Freddie Mac to increase the percentage of loans they issued to low and moderate income homeowners over a 10-year period. The targeted numbers were 28.1 million loans valued at $2.4 TRILLION.
This caused Fannie and Freddie to increase their purchase of subprime and poorly-documented loans to meet the direction of their overseers. Yet, Mr. Cuomo still doesn’t accept blame for his actions, and even has the gall to sue Bank of America and ask the people of New York to promote him to Governor. Is it any wonder our banking system still has challenges? Is there any surprise that people question the wisdom of their political leaders?
Mr. Volcker may be the best person to shepherd effective banking reform through Congress. He has immense skills and brain power. But he will never succeed unless he admits that government and Congress are the root causes of the problem. Like a 12-step program, government needs to admit they are at the core of the problem before they can seek redemption.
In Honor of His 103rd Birthday, Here Are The 20 Best Quotes From The Late, Great Milton Friedman | John Hawkins