In 1989, the CEOs of our seven largest banks earned an average of $2.6 million. In 2007, the average CEO income had risen to $26 million. The ordinary citizen might believe that this is grotesque overcompensation, but the financial sector found the pay perfectly reasonable. A year later, this sort of thinking led us to the brink of complete financial collapse. The financial crisis of 2008 now looks more and more like a defining moment, a crisis of capitalism. Globally, it has produced, in addition to a crippling recession, an unending debt crisis. Our own escalating, unpayable debt makes the future of U.S. power increasingly uncertain. Government borrowing and spending policies have failed to stimulate growth in the economy.
The crisis is, at its heart, a cultural failure combined with a political collapse. Behavior by bank executives that once was discouraged by a lifted eyebrow created complex structures abetted by an aggressive reading of the statutes—anything not explicitly prohibited was considered permissible. As Mervyn King, governor of the Bank of England, put it, “There was a cultural tendency to be always on one side and always to be pushing the limits.” The crisis almost immediately destroyed the rule of law. Secretary of the Treasury Henry Paulson told The Washington Post in November 2008: “Even if you don’t have the authorities—and frankly I didn’t have the authorities for anything—if you take charge, people will follow. Someone has to pull it all together.” In 2011, Phil Angelides, chairman of the U.S. Financial Crisis Inquiry Commission, summarized the problem: “These banks are too big to fail. They’re too big to manage. They’re too big to regulate. They’re too complex to understand and they’re too risky to exist. And the bottom line is they offer very little benefit.”
Four years after the crisis began, another election is upon us. What have we learned? Where are we now? What are the prospects for meaningful reform of the financial system? Will our debt crush us? Should we let it? Is it legitimate? What comes next? An open discussion of these questions needs to take place now. The health of the financial system, and of our republic, depends on it.
Yet for the bankers, it is still business as usual. In his book, Bailout, Neil Barofsky, the former special inspector general in charge of oversight of TARP (the $700 billion Troubled Asset Relief Program), writes that a major cost of the bailout is the perpetuation of the existing financial system: Paulson and his successor, Timothy Geithner,“hadn’t just saved the banks, they’d also preserved a status quo that was dangerously broken, and in so doing they might have actually increased the danger lurking in our financial architecture.”
Nick Carraway, the narrator of The Great Gatsby, says that when Jay Gatsby tells him their luncheon companion, Meyer Wolfsheim, fixed the World Series in 1919, “the idea staggered me.” Nick says he knew that the Series had been fixed, but he had thought of it as a thing that just happened, the end of some inevitable chain of events. “It never occurred to me that one man could start to play with the faith of fifty million people—with the single-mindedness of a burglar blowing a safe.”
Like Wolfsheim, the big banks have since 2005 fixed a benchmark thought by millions to be beyond manipulation or reproach—the London interbank offered rate. The LIBOR is an average reported by 16 big banks of what they estimate it would cost them to borrow from another bank. It is used to set rates on mortgages, credit cards, and many other personal and commercial loans. The amount of money affected by the rate, at any given time, is estimated at $800 trillion. The British bank Barclays routinely altered its submitted rates to push the LIBOR high or low to benefit bets it had made on interest rate derivatives. That is, it was fixing the result of its outstanding bets. One Barclays executive was recorded as saying, “We’re clean but we’re dirty-clean, rather than clean-clean.” Barclays derivatives traders made at least 257 requests to the bank’s London rate submitters over a four-year period. The emails between Barclays New York derivatives traders and its London rate submitters are stark: “For Monday we are very long $3 m cash here in NY and would like the setting to be set as low as possible … thanks”; “Always happy to help, leave it to me, Sir”; “Done for you big boy”; and “Dude. I owe you big time! … I’m opening a bottle of Bollinger.” Lord Turner, chair of the British regulator, the Financial Services Authority, expressed disbelief at the blatant behavior on the New York and London trading floors: “One of the shocking things about this,” he said, “is that on some occasions, the derivatives trader is not asking the submitter to change his submission on the basis of a hidden phone call or a note that he believes is hidden, but by shouting it across the trading floor.”
A single bank could not have that much effect on a 16-bank average, and sure enough, the scandal has spread. British regulators found that Barclays colluded with other big banks, among them JPMorgan Chase, Citigroup, UBS, Deutsche Bank, and HSBC. The banks seem to have a huge potential liability to those on the losing side of the fixed bets and to those who paid too much interest when the LIBOR was fixed too high. According to the July 7 Economist, “This could well be global finance’s ‘tobacco moment.’ ” Even now, the problems may persist. Federal Reserve Chairman Ben Bernanke told the Senate on July 17 that he “lack[s] full confidence in the rate-setting procedure.” Moreover, “it’s clear beyond these disclosures that the LIBOR structure is structurally flawed.” Andrew Tyrie, chair of the British parliamentary committee investigating the LIBOR, asked Paul Tucker, the deputy governor of the Bank of England, whether he was confident that it was now working normally. Tucker replied, “We can’t be confident of anything after learning of this cesspit.” Lord Turner added, “We would be fooling ourselves” to assume that trading manipulation was limited to trades. “There is a degree of cynicism and greed which is really quite shocking … and that does suggest that there are some very wide cultural issues that need to be strongly addressed.” In June, Barclays agreed to pay $450 million to British and American regulators, and arrests in connection with the LIBOR are thought to be imminent.
In the United States, other financial problems abound. Since 2000, the public sector has been on a national spending spree at least as irresponsible as that of the private. In this brief time, the national debt has nearly quadrupled, from $2.8 trillion in 2000 to $10 trillion in 2012. The debt is commonly said to be $16 trillion, but that number erroneously includes debt held in trust funds. The Social Security Trust Fund, for example, should be excluded, since the government owes that money to itself, which is like your left pocket owing your right pocket. Of the $10 trillion debt, $5.3 trillion is owed to foreigners, with Japan and China the leading holders, at $1 trillion each.In 2012, our revenues ($2.49 trillion) cover entitlements ($2.25 trillion) and interest ($225 billion), but nothing more. We cannot pay for the military ($868 billion) or the rest of the government ($450 billion), so we’ll borrow $1.3 trillion this year to cover those expenses. The deficits were predictable. Since 2000, spending has increased by 100 percent from $1.8 trillion to $3.6 trillion, while revenues increased only 25 percent, from $2 trillion to $2.5 trillion. For more than a decade, our government has spent money like a sailor on leave.
Inadequate tax revenues combined with rising costs added to the deficit. The Government Accountability Office last year reported some astounding total amounts paid to specific banks from all the emergency programs between December 1, 2007, and July 21, 2010: Citigroup, $2.5 trillion; Morgan Stanley, $2 trillion; Bank of America, $1.3 trillion. The government also provides ongoing aid to banks with the so-called carry trade, which allows banks to borrow cheap money from the Fed and depositors and lend it to the U.S. Treasury for a profitable risk-free spread.
The 2008 financial crash preceded our last presidential election by just two months. With another presidential election at hand, we should ask not only what caused the crisis, but also what steps we have taken to prevent the next one. President Obama’s theory is that Republican deregulation policies left Wall Street free to plunder the country, causing the crash. The cure is renewed regulation under the Dodd-Frank law passed in 2010. The president, after talking with his economic team shortly before he was to take office, told the public, “right now the most important task for us is to stabilize the patient. The economy is badly damaged; it is very sick. So we have to take whatever steps are required to make sure that it is stabilized.” Three years later, the president said he had underestimated the economic crisis. “I think we understood that it was bad, but we didn’t know how bad it was. … I think I could have prepared the American people for how bad this was going to be, had we had a sense of that.” The president, when signing Dodd-Frank, made a promise: “Because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes. There will be no more taxpayer-funded bailouts. Period.”
Republican candidate Mitt Romney’s theory is that government interference in the market—forcing bankers to give mortgages to poor people—caused the crash, and that the cure is to minimize regulation by repealing Dodd-Frank: “By the way, when I get rid of Obamacare and I get rid of Dodd-Frank and I get rid of Sarbanes-Oxley [enacted in 2002 after Enron and related scandals], it doesn’t mean I don’t want to have any law or any regulation. It means I want to make sure it’s modern, it’s updated, it goes after the bad guys, but it also encourages the good guys.”
Neither party proposes that the too-big-to-fail banks be broken up or that some competition replace the oligopoly. Neither party proposes a reasonable plan to get rid of the national debt. The current system gives bankers incentives to take excessive risks, since profits are private and losses are socialized. Any reform has to start with changing those perverse incentives.
Underlying this election, largely unspoken, is the worry that the U.S. debt has become so large that the country’s future is endangered. The 2010 Simpson-Bowles report on fiscal reform predicts that if interest rates rise, which seems inevitable, our country’s annual interest payments could increase to $1 trillion, meaning our annual deficit will be $2 trillion. That will no doubt further lower the American standard of living and, according to the Congressional Budget Office, “weaken the United States’ international leadership.”
The financial sector, from 1997 to 2007, made a bold raid on Americans who pay local taxes. Traditionally, a city issues fixed-interest debt with call provisions. A call option allows the city to redeem its bonds before maturity; if interest rates fall the city can pay off outstanding bonds and issue new ones at the lower rate. Since the rate is fixed, cities know what to expect. Although variable interest rate bonds typically carry a slightly lower interest rate, cities do not issue them because they can’t surprise taxpayers with new taxes if interest rates go up. The bankers said to the cities, “We can arrange for you to get the lower interest of a variable-interest bond. We’ll pay you if interest rates go up. Just enter into this interest rate swap—you agree to pay a fixed rate, and we agree to pay you the variable rate. So you can issue cheaper variable-interest debt, and we’ll pay you if interest rises.” But the cities had to waive their right to call their bonds. The deals were just bets—if interest rates went up, the cities won; if rates went down, they lost. American cities, transit authorities, and nonprofits reportedly made 1,100 such bets. When the government dropped interest rates to near zero after the crisis to help stimulate the economy, the bankers won their enormous bet. But the cities lost an equally large amount. Without the swap deal, the cities could have called in their bonds and issued new ones at lower interest rates, to the benefit of their taxpayers.
Other countries take a dim view of interest rate swaps. In 1990, the British House of Lords ruled that entering into such arrangements fell outside the powers of local governments. The banks argued that the swaps were “akin to insurance” to cover possible risks. The Lords, however, found that swaps were “more akin to gambling than insurance,” and local governments are not authorized to gamble. Finland and Poland outlawed derivatives based on interest rate swaps. Germany, in 2010, banned synthetic credit default swaps (portfolios of hedged bets) linked to Eurozone government bonds. The European Union Parliament’s economic and monetary affairs committee, in 2011, voted 34–8 to ban synthetic credit default swaps to constrain sovereign debt speculation.
Internationally, banks have consistently lost to cities and other governmental entities in litigation over interest rate swaps. After Austria’s state-owned railroad, in 2009, reported a $1.3 billion loss caused by writing down the value of interest rate swaps, it successfully sued Deutsche Bank on the grounds that the lender had not disclosed the risks associated with the derivative. Milan, in March 2012, settled its civil claims on interest rate swaps against Deutsche Bank, UBS, and JPMorgan Chase for 455 million Euros. In Germany, the cities of Würzburg and Hagen were awarded damages for losses caused by interest rate swaps. Britain’s Financial Services Authority (FSA) announced on June 29 that since 2001, the big British banks were guilty of “mis-selling” 28,000 interest rate swaps to small and medium enterprises. FSA said the banks had agreed to “provide appropriate redress” to the firms.
In the United States, however, the financial sector, using a device outlawed and discouraged in other countries, raided local taxpayers. The bankers always bet on interest rates to go down. Why? Did they intend to manipulate their bets through their control of the LIBOR? Throughout the financial crisis, the U.S. government was generous to the bankers. What about when the shoe is on the other foot? Would the bankers show any generosity toward our local governments? Lloyd Blankfein, the CEO of Goldman Sachs, was asked at the June annual shareholders’ meeting if he would let the City of Oakland out of its disastrous deal. He replied, “I don’t think we’re in a position to do that.” It would not be fair to his shareholders.
Could the taxpayers, after these huge losses, still run good schools and pay for police, fire, and other local services? That, said the bankers, was not their problem. But it may turn out to be. In July, British Member of Parliament John Mann asked Paul Tucker whether U.S. litigation brought by cities against some British banks had caused the Bank of England to put contingency plans in place. Tucker replied, “Could the class action suits, or whatever they are called, cause such financial damage to the firms that it could undermine stability? And people are starting to think about that too—not conclusively yet, but people are focused on that.”
Rarely is there a frank discussion of the legitimacy of the debt. Our leaders present our debt as necessary and our credit rating as sacred. But can debt be illegitimate? If it is run up without regard to law or public opinion, must it be binding? This is a question largely ignored.
For the past 40 years, U.S. policy has been to borrow and inflate the debt away. Since President Nixon took us off the international gold standard in 1971, prices have at least tripled. Inflation does shrink the debt, but it has a cost. Weimar Germany, to get rid of its foreign reparations, inflated its currency until a loaf of bread cost a wheelbarrow full of money. The inflation also wiped out the savings of the middle class, leaving it vulnerable to an aberrant appeal—the downside of this debt-fighting technique is that you can get a Hitler.
What is the nature of debt? Thomas Jefferson wrote in 1821 that there “does not exist an engine so corruptive of the government and so demoralizing of the nation as a public debt. It will bring on us more ruin at home than all the enemies from abroad.” Debt seduces by providing immediate money while delaying the burden of repayment. It is undemocratic, since the burden rests on a future that never consented to the loan. The current legislature has no right to bind future citizens, to deny those who come after us from a complete freedom of action.
Jefferson’s theory therefore posits that no “generation can contract debts greater than may be paid during the course of its own existence.” The “earth belongs in usufruct [trust] to the living,” he wrote; “the dead have neither powers nor rights over it.” If one generation can charge another for its debts, “then the earth would belong to the dead and not to the living generation.” Thus, he concluded, “neither the representatives of a nation, nor the whole nation itself assembled, can validly engage debts beyond what they may pay in their own time.” Our national debt is fairly short term—71 percent of it is due within five years—but it is constantly rolled over. This year the U.S. Treasury will borrow $4 trillion to cover the rollover and the new deficit. Twenty percent of the debt is due in six to 10 years and nine percent is in 30-year bonds.
The principle that one generation cannot bind another is a moral imperative, Jefferson believed, and a simple statement of fact. No current decision or debt can irrevocably bind future generations, which always have perfect freedom of action, whether they realize it or not. Chains from the past, Jefferson wrote, are always self-imposed.
The chains on today’s citizenry are a perpetual, unpayable debt. What if we default? Is the threat so dire? That would probably destroy our credit. We could not borrow any more. Might that be a blessing in disguise? After the Revolutionary War, the United States did not immediately repay the money Congress had borrowed in Europe to finance it. Our credit was consequently very weak. Alexander Hamilton, believing a strong national government needed strong credit, viewed the destruction of our credit as a calamity. Jefferson didn’t want either a strong government or strong credit: he believed in a weak central government and pay-as-you-go financing. In 1786, he wrote in a letter from Paris that “good will arise from the destruction of our credit.” Indeed, he thought it was essential to the preservation of our republican government:
I see nothing else which can restrain our disposition to luxury, and the loss of those manners which alone can preserve republican government. As it is impossible to prevent credit, the best way would be to cure its ill effects by giving an instantaneous recovery to the creditor; this would be reducing purchases on credit to purchases for ready money. A man would then see a poison painted on everything he wished but had not ready money to pay for.
In 1798, Jefferson proposed a constitutional amendment to take from the federal government the power to borrow. It would be, Jefferson wrote to John Eppes in 1813, “a salutary curb on the spirit of war and indebtment, which, since the modern theory of the perpetuation of debt, has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating.” No one, it seems, heeded his counsel.
Is the Bush-Obama debt legitimate? Did the country benefit from the borrowing? It’s hard to see any benefit. Instead, it has drenched the earth with blood.
What have we learned in the four years since the financial crisis? The story of the crisis, in broad terms, is simple enough: in 2008 the banks were stuck with $2 trillion of bad, “toxic” assets. The challenge posed by the crisis was plain as well: how could the banks shift that loss to the taxpayer? The government, under both President George W. Bush and President Obama, agreed to help the banks, telling the public that there was no choice. It was necessary—even though the government had to borrow the money—to bail out the banks. In a quarterly report to Congress, the special counsel for TARP reported that the government committed an astounding $23.9 trillion to support the banks. Otherwise, the government said, the sky would fall. Polls said that the people hated the bailout. They did not think it was necessary to prevent a catastrophe, and they would oppose it even if a catastrophe were to result. Today, 71 percent of the public thinks the government should let banks too big to fail, fail. The people feel that the no-choice bailout was extortion. They saw the banks bailed out with cheap loans and then watched the bankers pick up where they left off. Our four biggest banks now hold more than $7 trillion of assets, up 50 percent since the crisis. As bank profits doubled, the wealth of American families plummeted. House values dropped, and almost a quarter of mortgages are now underwater. Median income has dropped. By almost every measure, ordinary people are worse off. The sky has fallen—on them. The cause of the crisis, the people believe, was simple greed together with a complicit government willing to take on illegitimate debt. Treasury Secretary Geithner told The New Yorker’s John Cassidy in March 2010, “We saved the economy, but we kind of lost the public doing it.” Seeing that nothing much has changed, many Americans believe that we will be back in another crisis within a few years.
One of the major players seems to agree. “What’s a financial crisis?” Jamie Dimon, chairman and CEO of JPMorgan Chase, rhetorically asked the Financial Crisis Inquiry Commission: “Well, it’s something that happens every five to seven years.”
In 1933, following the 1929 stock market crash and the nation’s entry into the Great Depression, Congress enacted the Glass-Steagall Act to split commercial banking from investment banking. Commercial banking—taking deposits and making loans—was necessary to the financial well-being of the nation and deserved to be supported by the taxpayer through deposit insurance. Investment banking, however, was clearly part of the private sector and was on its own. Glass-Steagall said you are free to take risks if you want, but you do it with your own money and you get to keep your losses as well as your profits. Investment banking, after Glass-Steagall, was carried on by partnerships of wealthy individuals, who were personally liable without limitation for any losses of the partnership—you could lose your own house because of your partner’s mistakes. The partners were thus very careful about the risks they took. From 1933 until Glass-Steagall was repealed in 1999, the few bank failures we had did not threaten the system.
In the 1970s and ’80s, investment bank partnerships like Goldman Sachs turned themselves into corporations. They said it was necessary to compete with foreign banks. In corporations, the officers have no personal liability for their mistakes; it’s shareholders who can lose their investment. Now investment bank partners could take risks with other people’s money—without fear of losing their house.
Once this change was in place, the banks asked Congress to make several major legal changes. One involved derivatives, which have been defined in part by the Joint Committee on Taxation as “a wager.” So they are by definition gambling, and gambling debts have been unenforceable in common law since medieval England. In the United States, betting was also illegal because of early-20th-century state laws outlawing “bucket shops.” Bucket shops took bets on stock prices without buying the stock—a practice similar to today’s derivatives—and were partially blamed for the Panic of 1907, after which most states banned them.
Congress obliged the banks by authorizing interstate banking in 1994, repealing Glass-Steagall in 1999, and immunizing derivatives from state and federal gambling laws in 2000. The 2000 law also excluded credit default swaps from the definition of security under the Securities Act of 1933, exempting them from the requirements that stocks and bonds must meet. In 1988 The New York Times editorialized in favor of repealing Glass-Steagall: “Few economic historians now find the logic behind Glass-Steagall persuasive.” In 1990, it wrote, “the notion that banks and stocks were a dangerous mixture makes little sense.” Lawrence Summers, President Clinton’s Treasury secretary, led the fight for the 2000 law immunizing derivatives.
Over the next decade, the world saw an explosion of exotic, “innovative” financial products, including collateralized debt obligations, credit default swaps, and commodity and swap indices. A bizarre new language came along with them: synthetic credit risk, straightened curves or curve-flatteners, mezzanine tranche, stress loss, and basis trade. The innovative products, however, had little or no past performance. Their complexity made analysis and predictability very difficult. The huge distribution of poorly understood instruments set the stage for the financial crisis.
Can the big banks be regulated? Are they too big a dog to discipline? The Dodd-Frank law’s 2,319 pages are based on the theory that more regulation will prevent a repeat of the crisis. This seems unlikely: before the crisis, banking was the most regulated business in the country. The crisis was a massive regulatory failure. SEC regulators could not catch Bernie Madoff even after they had been tipped off any number of times. The problem with Dodd-Frank is that an ambiguous statute will be followed by extensive regulation drafting, which will be followed by extensive litigation. Two years after enactment, much of the law has, by design, not yet been implemented. The Volcker rule is supposed to prohibit a bank’s purchase of securities and derivatives for its own account, but it allows such purchases if they are intended to “mitigate” the “risk” of what the bank already owns. The distinction, which depends on motivation, will be hard to draw in the real world. The exception may swallow the rule. The gambling activities that caused JPMorgan’s multibillion-dollar losses this year are probably legal under Dodd-Frank.
Dodd-Frank is less a law than a general guide. It calls for 398 regulations, which are still being drafted. The banks, if the regulations do not suit them, will litigate. In view of the statute’s complexity and detail, the banks should do well. The regulatory approach gives every advantage to banks with well-funded lobbyists and lawyers. Jamie Dimon told the Senate on June 13 that of the more than 100 government regulators permanently on duty at the offices of JPMorgan, none had noticed the derivatives trades that led to its $5.8 billion loss. Dodd-Frank adds complexity to a system that needs simplicity. Both regulators and the courts need simple rules to enforce.
What should Congress have done with derivatives? What can be done, since they are too complex to be regulated? Even Dimon himself could not control his own bank’s trade in derivatives. In April he said rumors of bank losses were a “tempest in a teapot.” On May 10 he announced that the bank had lost at least $2 billion in trades that were, according to Dimon, “egregious” and “stupid.” On July 13 Dimon announced that the bank had lost $5.8 billion and could lose another $1.7 billion. “Essentially, JPMorgan has been operating a hedge fund with federal insured deposits within a bank,” said Boston University professor of finance Mark Williams.
After the financial crisis, derivatives should have lost their immunity from gambling and securities laws. Congress, however, did not seriously consider making that happen. It made some effort to bring derivatives out of the shadow world of unregulated trading. Drafts of Dodd-Frank proposed that derivatives be traded on exchanges so the public and regulators would at least know of their existence and pricing. But the bankers’ lobbyists beat back that modest effort at reform in the last days before the law passed.
The solution to our problem is clear: the system needs to be simplified and the bankers’ incentives need to be changed. A return to Glass-Steagall and a repeal of the gambling immunity for derivatives would be a good start. Sanford Weill, former CEO of Citigroup, who lobbied hard in 1999 for the repeal of Glass-Steagall, announced on July 25 that he thought the law should be reinstated, a change of heart so surprising it has been compared to seeing a unicorn walk down Broadway. Weill said, “What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.” On July 27, The New York Times admitted in an editorial that “we were wrong to support” the repeal of Glass-Steagall; the same day, the Financial Times editorialized in favor of the restoration of Glass-Steagall, writing, “If a bank is too big to fail, it is too big to exist.” Some argue that Glass-Steagall might not have prevented the crisis; Summers told NPR on July 30 that its return would be no panacea. What cannot be disputed, however, is that it kept the public safe from the banks and the bankers safe from themselves for more than 60 years.
Why has Congress been so feckless? Why has Congress done so little to fix this massive, institutional gambling fiasco? The banks, of course, spend lavishly on lobbying. But where the behavior is so egregious (and the public’s contempt so clear), the failure to act remains puzzling. As the 2010 election showed, members of Congress can still lose their jobs. The financial industry did not want to bring us to the edge of a cliff. It did not want to risk destroying itself along with us. The bankers themselves do not understand what they have created—a world so complex that no one understands it. Because the consequences of taking action are not predictable, Congress is afraid to act. If you are facing a house of cards, even prudent action can bring it down and you will be blamed.
The Bank of England’s Donald Kohn testified on July 17 to Parliament:
The banks on both sides of the Atlantic need to rebuild public confidence that their pursuit of profits is consistent with and conforms to the public good—that they are allocating capital, using savings safely, not exploiting a particular advantage or exploiting to take advantage of others and that they are doing so in an honest and upright way—as has been raised in the LIBOR thing. There is a long way to go.
“Everything works much better,” the late economist Anna Schwartz said, “when wrong decisions are punished and good decisions make you rich.” The current arrangement creates incentives favoring risk, since profits are private and losses shared. Gamblers should gamble with their own money and keep their losses as well as their profits. We have, as Lord Turner says, “some very wide cultural issues that need to be strongly addressed.” The banking leaders who broke the rules should be prosecuted. A return to Glass-Steagall would help. Otherwise, as Jamie Dimon tells us, we should expect a crisis every five to seven years. We are about due.
Thanks to Elizabeth Holland and Kristin Tucker for their research assistance, and to David G. Owen for his editorial insights.