Unless basic Wall Street problems are Tackled

Washington was slapped in the first week of February by a harsh report that politicians will find difficult to ignore. Unless basic Wall Street problems are tackled the country is likely to face another foreclosure triggered mess in the near future. This was the gist of the grim warning given by Neil Barofsky, the Special Inspector General for TARP.

Barofsky said, “Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.”

Referring to the Wall Street culture the report commented on the irresponsible risks courted by Wall Street because of their sanguinity that in either case – whether heads or tail, they would emerge unscathed. If it was heads they won but if it was tails the government would bail them out. They became over confident of their too-big-to-fail status.

The report lamented that in spite of the costs taxpayers had to bear because of there has been hardly any change in the “excessive compensation structure” of Wall Street. The government is courting the creation of another bubble that to all practical purposes it owns or has the control of “nearly all the residential mortgage market.” The obvious question is that when this housing bubble bursts then who will bail the government out?

The grim report was laced with some favourable news that the financial markets seemed to be stronger and fast TARP loans are being quickly repaid – faster than expected. It is profitable for the taxpayer.

The problems however continue to persist. The report said that the programme for bolstering small businesses announced in 2009 March has not materialized. The country suffers if the small entrepreneurs fail to hire workers and employees.

Unemployment is continuing on its record breaking spree. Only a tiny portion of foreclosures have been prevented through the TARP plan. It would be dangerous and irresponsible to allow such problems to persist. The realities have to be confronted by both the Congress and the government. Corporate America too needs to wake up to facts if it does not want to face dire consequences.

Competition in the market generates the safety valve that banishes the elements of risky behaviour. According to this rule of thumb the wise companies win while the reckless ones pay the price and down shutters – that is if the latter are allowed to do so by the government.

Original Post: Unless basic Wall Street problems are Tackled, the Country is likely to face more Foreclosure