Why Government Regulation was Not Implemented After the 2008 Financial Crisis

The 2008 financial crisis, often linked to subprime mortgages and credit default swaps, remains a pivotal event in global economic history. Yet, critics argue that the real issues lie not with the products themselves but with systemic factors and the power dynamics at play. This article explores why government regulation was not effectively brought in after these events, despite the severity of the impact.

Regulatory Measures: A Tangled Web of Power Dynamics

One common narrative is that subprime loans were, in and of themselves, not the primary cause of the crisis. Instead, the core issue was a cycle of boom and bust that has been a recurrent theme in economic history. Despite calls for reform, many argue that new or increased regulations were insufficient and, in some cases, regressive.

Following the crisis, some regulations that had previously been removed were put back. However, these efforts were often inadequate. The real problem lay in the power structures that allowed certain financial institutions to avoid stricter oversight. Companies like Bear Sterns, Lehman Brothers, Merrill Lynch, and Goldman Sachs played a significant role, but it was Goldman Sachs that barely survived with extensive government intervention.

The Role of the Largest Banks

The top five banks hold more assets and thus more political influence than the combined assets of all other banks. This significant power means that these institutions could effectively dictate policy to Congress. Any congressman who opposed them faced severe consequences. They were either deselected in primary elections or defeated in general elections. Those who managed to remain in Congress found it challenging to engage in legislative work, as they were isolated by other members who were also under the banks' influence.

The Influence of Supreme Court Decisions

One key Supreme Court decision, Citizens United, further entrenched the power of corporations. This ruling suggested that corporations have the same civil rights as individuals, which is a dubious assertion. In reality, corporations have fewer responsibilities and more rights than human citizens. Their existence and rights are granted by state laws, which means these entities can be nullified by future decisions.

The supremacy of corporations over individuals is not just a legal issue; it is a moral one. The Citizens United decision amounted to creating a higher class of citizens, thereby favoring corporations over individuals. This ruling not only impacts political dynamics but also economic structures, as companies can influence financial policies more easily than private individuals.

The Future of Regulation and Power Dynamics

The fight for more effective government regulation is ongoing. Understanding the complexities of power and influence is crucial in shaping a future where financial stability is not endangered by the actions of a few powerful entities. The lessons from the 2008 crisis remain pertinent, serving as a reminder of the need for robust regulatory frameworks that can withstand the pressures of corporate influence.

It is clear that addressing the root causes of the 2008 crisis requires a multifaceted approach. Revisiting the regulatory powers of government and rethinking the privileges granted to corporations are essential steps in preventing similar crises in the future. Only through a balanced and equitable distribution of power can we ensure a more stable and resilient financial system.