The documentary Inside Job gave us a glimpse of corruption within our financial sector. Now to understand why this happened and what we need to do to prevent it from happening again we need to look at the history of regulation. We see regulations on business and industry becoming popular during the Progressive Era. The most notable being the anti-trust laws, designed to destroy and prohibit monopolies, and the institution of a progressive federal income tax, designed to protect the American consumer.
During the second half of the twentieth century we see deregulation start to take place. Caps on interest rates on savings and checking accounts were removed. Banks found they had the money to push for change that benefited them, it even extended to the point that they could directly violate the law and face no repercussions. We see this in 1998 when Citicorp and Travelers merged. In Charles Ferguson’s Inside Job Robert Gnaizda remarked, “It was illegal to acquire Travelers. Greenspan said nothing. The Federal Reserve gave 'em an exemption for a year; and then they got the law passed.” Glass vs Steagall restrictions were removed, bank lobbying increased exponentially, and any attempts to propose any new regulation were opposed vehemently and the existing ones begin to be attacked.
The hard thing about proposing reforms is that there is money against it. We would need a completely impartial team of economic specialists, foreign and domestic, to sit down with lawmakers and work out a plan. I personally think the concentration of wealth within a few key banks is a weakness. We may have to find a way to break some of these key players up. I think we also need to impose regulations on investment banks to prevent them from making risky decisions with investor money. The financial sector needs controlled growth, not an explosion of growth.
BTW, http://www.openthegovernment.org/sites/default/files/otg/dereg-timeline-2009-07.pdf is a very helpful link to help understand financial deregulation.