What to do?
There were several schools of thought.
The administration locked itself into an alliance with Wall Street. They killed proposals for structural reform and restraints on private economic power. They are gambling on a turnaround -- their version of faith-based politics -- even as jobs are not coming back.
In short, they have no answers and are not prepared to fight any messy battles with the real power structure. In the name of pragmatism, they have betrayed their own campaign compromises and tacked right to out-Republican the Republicans. They call it "triangulation." Their critics call it a sell-out, although what's left of the Left was quickly left out.
The Republicans retreated into simplistic ideologies, blaming everything on Democrats and government spending. They began fueling a scare about the deficit the way their predecessors raved against the Red Menace.
They have no answers either.
In Congress, the wise men came up with a financial reform called Dodd-Frank. After stripping it of any radicalism, they offered up some pragmatic measures to increase regulation and try to force the finance industry to act responsibly with more transparency and accountability. The bill explicitly rejected proposes for any and all international standards.
Dodd-Frank passed, but then the real bargaining began on what the new rules should be. The finance industry mounted a lobbying force of 25 high-powered lawyers and consultants for every member of Congress. The deliberations moved out of public view and into the corridors and closed clubs in Washington.
The predictable result has now surfaced in the New York Times:
"Nearly one year after Congress passed financial changes to rein in the banking sector, more than two dozen of the legislation's rules are behind schedule, and no end to the wrangling over details is in sight.
"The delays come as regulators extend public comment periods on the rules, and as some on Wall Street and in Congress resist the changes. One result may be that many new safeguards do not take hold in earnest before the next election, an outcome that could open the door for newly elected officials to back away from the overhaul."
The respected blog Naked Capitalism has followed this in excruciating detail. Concluded Richard Smith, a London-based capital markets IT Specialist:
"So where does that leave us with our shadow banking reforms? Well, we have a modest tweak to bank capital requirements, of unknown efficacy. The mountain has labored, and brought forth a mouse.
"Or you might prefer to pursue the anaconda/rabbit imagery to a physiologically realistic conclusion."
(Translation: The snake swallowed the rabbit.)
Yves Smith, the editor of the blog is not surprised, suggesting this was the outcome that was always intended: To kill the bill by appearing to "strengthen" it.
So where are we? Nowhere, or perhaps it's even worse than that. Many in the public backed the reforms including protections of consumers. They think it is being enacted.
When the next market crash occurs, as many insiders fear it will, they will realize how they were played, but then it will be too late.