In the comics series Origin, fictional character James Howlett transforms into the superhero known as Wolverine when he witnesses the murder of the man he believes is his father. In a rage, he kills the murderer, who it turns out may actually be his real father. Instead of dealing with these tragic events, he chooses instead to block the memories. This mental block represents a form of healing, allowing Howlett to move on with his life.
On the 10th anniversary of the financial crisis and the collapse of Lehman Brothers, policymakers have thrown up a mental block – and it is to our own detriment.
There were many causes to the financial crisis: subprime mortgages; a liquidity crunch; and inadequate oversight; to name a few. Much has been done to try and address these issues, such as the Emergency Economic Stabilization Act, Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III capital accords, and the ongoing G-20 process.
However, one of the issues that was not addressed and continues to plague our financial system is an inadequate regulatory system. Financial regulatory reform is no longer an issue policymakers can debate at their leisure – it is a race against time, and one the U.S. should not lose.
Numerous reports examining the state of the financial system have pointed to an outdated financial regulatory system, largely rooted in the New Deal era, which is no longer keeping up with the financial needs of the 21st century economy. This outdated system of oversight was viewed as harming U.S. competitiveness as early as 2005. If inadequate oversight was a problem leading into the 2008 financial crisis, the problems are even more acute now, and rather than addressing these issues, policymakers have taken a building condemned for a faulty foundation and decided to build an additional floor or two.
In September 2016, the U.S. Chamber released Restarting the Growth Engine: A Plan to Reform America’s Capital Markets. This plan sought to put financial regulatory reform back on the front burner. The reports released by the Department of Treasury in 2017 and 2018 have made solid and credible recommendations in this area.
Since the crisis, the United States now recognizes systemic risk as an issue, derivatives are cleared, credit ratings have been strengthened, and cross-border cooperation amongst international regulators has been improved. These are some of the examples were the system has been improved and strengthened.
But new problems have cropped up. A rising Chinese market is threatening U.S. dominance. New U.K. and E.U. regulations may create a system that forces new innovative industries such as fintech overseas. Our markets face more overseas competition, but we haven’t made them more competitive.
Wolverine can scratch, claw, and fight through his problems, but policymakers can’t solve problems that same way. The fact, though, is this: We cannot simply ignore these remnants of the financial crisis.
All interested parties need to start to act to help insure that regulatory oversight regulates the fuel needed for economic growth, good-paying jobs, and continued prosperity.