Financial Oligarchy Responsible for Foreclosure Crisis

Foreclosure crisis

It is the financial oligarchs ruling in Washington that are being held responsible for the foreclosure crisis. Economist Simon Johnson of MIT contends that it is not only political corruption that has given this group immense clout in the corridors of power. The guiding force is the tremendous belief in the free-market theory. So long as Wall Street thrived, nobody questioned the veracity of this.

The health of Wall Street came to be linked with that of the rest of the world. But the foreclosure crisis has exploded that myth. There is plenty of mud slinging going on and the principal villains of the piece are three – continuous low interest rates maintained by the Feds, deregulations and lack of supervision and the pampering of Fannie Mae and Freddie Mac. It is to be noted however that there is one common string running through all these three – they all acted to boost the interests of the financial system and not the welfare of the public. Johnson said, “The power of the financial sector goes far beyond a single set of people, a single administration, or a single political party.” Nobel Laureate Joseph Stiglitz opined that the financial sector had become obese and unhealthy – taking in much more than what it gives to society. They have become so powerful that it will not be an easy task to deregulate them. The system becomes complex when small financial entities become linked with the rest.

This is what happened with AIG. Thus even the small firms need to be watched so that they do not become too big for their shoes. There are many who echo the sentiments of Stiglitz and Johnson but it is not the majority line of thinking. The new government has plans to set up a regulatory structure to deal with the financial bodies that are over bloated. The idea is to systematically check them and then shut them down in a phased manner.

The Obama team has not suggested however that these companies who are “to big to fail” to be cut down to size. This is not surprising since President Obama relies for advice on economic matters on people who may be termed the head priests of the financial cult. There are however few exceptions. Congress is far less inclined than the administration to crack down the banks. Barney Frank and Chris Dodd have not suggested anything near to implementing radical reforms. As such the banking lobby continues to dominate Washington.