The worst crisis since the Great Depression is entering its third year -- the recession actually began in late 2007. Trillions of dollars have been lost worldwide, both on the balance sheets of financial institutions, and more profoundly in lost GDP and employment. Yet so far there is no serious legislation in the pipeline that would address the causes of the meltdown by radically overhauling the banking and mortgage-finance systems and regulating trade in risky assets like derivatives.
There are four reasons for the inaction. One is timing. Had President Obama been elected in June 2008 he would have responded to the emergency sooner. But because of the lag between the pinnacle of the financial crisis in the fall of 2008 and Inauguration Day of 2009, a change in leadership delayed decisive action.
That delay was compounded by the lack of a guiding vision. Obama was forced to choose his economic team at the depth of the crisis, when he had to pick names that would reassure the markets-players who knew how to pull the levers of power and could hit the ground running. That meant turning to veterans of the Clinton era, who were architects of several of the structural problems that exacerbated the trouble. Memories of past efforts by Robert Rubin and Larry Summers to squash derivatives reform, as well as Timothy Geithner's role in the bailout of AIG, certainly gave pause to the notion that finance would experience "change we could believe in." The price of selecting those with experience was resistance to reform.
Robert Johnson is Director of Financial Reform at the Roosevelt Institute and a former managing director at Soros Fund Management.