Nobel Prize-winning economist Paul Krugman says he wishes President Barack Obama hadn't told Wall Street bankers he believes that his proposed financial reforms "are, in the end, not only in the best interest of our country, but in the best interest of the financial sector."
Krugman says "the fact is that Mr. Obama should be trying to do what's right for the country — full stop."
"If doing so hurts the bankers, that's OK," he says. More than that, Krugman says that reform actually should hurt the bankers.
“A growing body of analysis suggests that an oversized financial industry is hurting the broader economy,” Krugman recently wrote in The New York Times. “Shrinking that oversized industry won’t make Wall Street happy, but what’s bad for Wall Street would be good for America.”
Krugman believes the reforms currently on the table, which he supports, might end up being good for the financial industry as well as for the rest of us because they only deal with part of the problem. They would make finance safer, but they might not make it smaller.
“Remember the 1987 movie “Wall Street,” in which Gordon Gekko declared: ‘Greed is good?’” Krugman asks. “By today’s standards, Gekko was a piker.”
“In the years leading up to the 2008 crisis, the financial industry accounted for a third of total domestic profits — about twice its share two decades earlier," he says.
"These profits were justified, we were told, because the industry was doing great things for the economy. It was channeling capital to productive uses; it was spreading risk; it was enhancing financial stability,” he says.
“None of those were true.”
Democrats and Republicans in Congress may want to look tough on financial reform in front of voters but that has not stopped them from filling their re-election war chests with plenty of Wall Street cash, Reuters reports.
The political action committees of six Wall Street banks spent the first quarter of 2010 giving handsome donations to Republicans and Democrats who are critical to passing legislation that could determine the future of the U.S. financial sector.
The banks — JPMorgan Chase, Wells Fargo, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs — gave about $106,000 to 12 members of the Senate and House of Representatives who sit either in leadership positions or on the committees that forged the measures.
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