Somewhat less, however, than the trillions the Federal Reserve spent to prop up the giant banks after the 2008 financial meltdown. The cause of the crisis, according to informed insiders, was a familiar one: bad referees.
One of those insiders is former FDIC head Sheila Bair, who has detailed the disaster in a new book, "Bull By the Horns." Bair was at the FDIC in 2006, looking at the terrifying rise in mortgage fraud, joining state regulators and consumer advocates in urging Fed chief Alan Greenspan to stop rampant predation and fraud in the mortgage industry.
Alas, they were talking to a guy who turned out to be, among other things, the worst referee in the history of American finance.
Greenspan had unique power as Fed chief to mandate standards that would have stopped predatory lending and fraud, though he chose not to use them. Greenspan believed that free markets could safely regulate themselves. He actually blocked state-level refs from policing out-of-control lenders in their home states.
Poor officiating - bad for the NFL, and, as Bair argues, bad for the economy.
Bair, a Republican and Bush appointee, advocates for sound lending practices, sufficient reserves and prudent leverage limits as the building blocks of better banking and economic growth. She fought to incorporate these principles into the Dodd-Frank financial reform act, with some success. The law contains a consumer protection bureau within the Fed. Banks are required to keep more money on hand to cushion them in hard times. And the government now has the authority to put failed banks out of business, in a way that does not panic markets.
Dodd-Frank was signed into law in 2010, but it's far from settled. It provided the framework for regulation, but feds and banks are still arguing over the details. Regulators, after a two-year negotiation with Wall Street lobbyists, recently published their definition of credit default swaps – it's 600 pages long, filled with exceptions. And Wall Street is pushing hard against the Volker rule, which would limit the kind of bets that banks could make with money that we taxpayers guarantee.
The rules need to be simpler, not longer. Finding the right balance will be a tough battle - it took nearly a decade to settle on new finance laws after the Great Depression. Whatever the new rules turn out to be, we need to take enforcement seriously. Let's make sure we have folks in the end zone who know what they are doing and give them the power to do it.
After all, we all know what the big-money game looks like without the right referees.