Trying to Change Wall Street Four Years After the Crisis


Wall Street's meltdown occurred more than four years ago. People are getting a little tired of hearing about how banks took risks so large they nearly took down the entire economy, and how little has changed since then. They've heard it a thousand times.

But this story should never get old, because it has the potential to affect everyone in profound ways. The top four banks, Bank of America , Citigroup , JPMorgan Chase , and Wells Fargo , are in aggregate larger today than they were five years ago. When the next banking crisis hits -- and it will -- it very well could be 2008 all over again.

What can we do about it? Last week, I sat down with Ron Suskind, a Pulitzer Prize-winning author of five books. His latest, Confidence Men, explores President Obama's first two years in the White House, which provided Suskind with a unique view on the relationship between Washington and Wall Street. Here's what he had to say about bank regulations (transcript follows):

Ron Suskind: Dodd-Frank is on the books. I don't think Wall Street is all that concerned about it, which I think gives you a little bit of pause. But the fact is there's going to be battles over the coming years with lots of rule-writing, that's why the whole town [Washington DC] is organized with lots of well-funded communities of lobbyists -- and former senior officials, frankly -- to make sure the rules are written just so. I think rigor on that front is an area of real opportunity for Obama. The fact is, some of the structural suggestions of Dodd-Frank probably can be carried forward up to a point, but when it comes to Wall Street, I think that the big opportunity of 2008 and 2009 is going to be hard to restore, replace, or revive. As long as the money is cranking, even if it is not grounded in the kind of economic forward motion that the country needs, Wall Street will continue to do it.

If there's another eruption, though, and there could well be, then he'll have another chance, to be blunt about it. Sweet are the uses of adversity. Isn't Motley Fool from As You Like It? Isn't it the guy who says the emperor has no clothes?

Morgan Housel: Yep.

Ron Suskind: I love that. Well there's another thing from As You Like It that works here, which is "Sweet are the uses of adversity." Now the reset of it is the best part of the quote: "Sweet are the uses of adversity, which like the toad, ugly and venomous, bares a precious jewel at its forehead."

Adversity offers a leader the jewel. The jewel where the who country snaps around and says, "Would someone be the grownup here? We are ready to change, at least today. At least while we're fearful. At least while we see how we're all in this together, in fundamental ways. And the fact is, Obama could have another opportunity like that. The big banks are bigger and more concentrated than they were. They are still doing on balance largely the same thing. There are still odd and invisible concentrations of risk that are finding their ways to the trading desks. If you don't change these structural issues and risk remains underpriced, there will be an explosion. Will it happen in the next four years? Because if it does, I will bet you Obama will force structural change, and structural change that will be on balance better for everyone. And that's the thing that I find heartening about many of my friends who are at the top of Wall Street's banks: Deep down, they know this. They're like, "As long as it is what it is, I'm just going to keep making my money." When you ask them the fundamental question of what's best for the country, they say "A little tough love would have been very good when we were ready to receive it." And there might be another chance up ahead, and I think Obama will seize it. I think he feels unrequited, and I know he knows he missed opportunities.

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Morgan Housel has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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