Tags: Stiglitz | Fed | bank | Yellen

Stiglitz: US Financial Reform Is a Glass Mostly Empty

By    |   Thursday, 10 October 2013 08:07 AM

Central bankers — including those at the Federal Reserve — should stop before they pat themselves on the back for rescuing the world in the wake of the 2008 financial crisis because it has merely produced five years of "limbo," according to Nobel Prize-winning economist Joseph Stiglitz.

In a column for Project Syndicate, Stiglitz noted 22 million Americans still cannot find a job, and most people in the nation have lower levels of income and wealth than they did before the meltdown.

"The financial system may be more stable than it was five years ago, but that is a low bar — back then it was teetering on the edge of a precipice."

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Stiglitz acknowledged banks' capital requirements have been raised a bit, some of the riskiest derivatives have been made transparent and some of the worst lending practices have been halted. But he said the progress has been meager.

"America's mortgage market remains on life support: the government now underwrites more than 90 percent of all mortgages and President Barack Obama's administration has not even proposed a new system that would ensure responsible lending at competitive terms."

Meanwhile, the biggest banks have become more concentrated and interconnected, with the result they are also "too big to manage and be held accountable," Stiglitz wrote.

"Despite scandal after scandal, from money laundering and market manipulation to racial discrimination in lending and illegal foreclosures, no senior official has been held accountable; when financial penalties have been imposed, they have been far smaller than they should be, lest systemically important institutions be jeopardized."

Instead of self-congratulation, America's economic leadership should be focused on a job that is incomplete, Stiglitz asserted.

"The glass is, at most, only one-quarter full; for most people, it is three-quarters empty," he quipped.

With the nomination of Federal Reserve Vice Chair Janet Yellen to be the next head of the U.S. central bank, a continuation of the current Fed economic stimulus policies can be expected, Reuters predicted.

Yellen has solid support from Democrats, but some Republicans worry her support for holding overnight interest rates at zero and continuing huge government bond purchases could create asset bubbles and spark high inflation.

Yellen, while arguing slightly higher inflation is an acceptable price for a lower jobless rate, "has never dissented on a Fed policy decision" during her tenure at the central bank, according to Reuters.

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Related Stories:

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Former Treasury Official: Another Financial Crisis in 5 Years Is Possible

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Central bankers — including those at the Federal Reserve — should stop before they pat themselves on the back for rescuing the world in the wake of the 2008 financial crisis because it has merely produced five years of "limbo," according to Nobel Prize-winning economist Joseph Stiglitz.
Stiglitz,Fed,bank,Yellen
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2013-07-10
Thursday, 10 October 2013 08:07 AM
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