Bankers' recent testimony showed a stunning failure, even now, to grasp the nature and extent of the current crisis, says economist Paul Krugman.
"That's important," Krugman writes in The New York Times.
"It tells us that as Congress and the administration try to reform the financial system, they should ignore advice coming from the supposed wise men of Wall Street, who have no wisdom to offer."
The amazing thing about this is that the last financial crisis was entirely self-inflicted, Krugman notes.
“This isn’t like the stagflation of the 1970s, which had a lot to do with soaring oil prices, which were, in turn, the result of political instability in the Middle East,” he says.
“This time we’re in trouble entirely thanks to the dysfunctional nature of our own financial system. Everyone understands this — everyone, it seems, except the financiers themselves.”
JP Morgan Chase CEO Jamie Dimon’s comment that a financial crisis is something that “happens every five to seven years” is dead wrong, Krugman says.
“The truth is that the United States managed to avoid major financial crises for half a century after the Pecora hearings were held and Congress enacted major banking reforms,” he points out.
“It was only after we forgot those lessons, and dismantled effective regulation, that our financial system went back to being dangerously unstable.”
"If we do this right," former California treasurer Phil Angelides said after being appointed to lead the Financial Crisis Inquiry Commission, "our work can serve as an antidote — much as the Pecora hearings did in the 1930s — to the kind of financial market practices that none of us would want to see repeated ever again."
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