We recently asked you for questions for the White House about the financial crisis. Your response was impressive.
Among the 150-plus questions, we were able to narrow it down to nine of the most representative ones, which we then sent over to the White House. Here are the administration's answers to your questions, answered by officials from both the Council of Economic Advisors and the National Economic Council.
1. Crooked Wall Street bankers should have gone to jail. Why didn't they?
First, remember that decisions on law enforcement are made independently by the Justice Department. But here are the facts:
The past five years have been one of the most prolific periods for financial prosecutions brought by the Justice Department in recent history, and the SEC, CFPB and state regulators have taken significant steps in holding Wall Street firms accountable. On top of that, the new protections that Wall Street Reform puts in place are designed to prevent the kinds of abuses that contributed to the financial crisis from happening again.
To highlight a couple of the most notable efforts to bring those who broke the law to justice have included the Justice Department charged more than 37,000 white collar defendants from 2009 to 2012 -- of which more than half were financial fraud cases, including 3,520 mortgage fraud defendants. The average sentence length of this type of fraud case has nearly doubled in the last decade. The United States and 49 States' Attorneys General completed the largest mortgage settlement in history, helping 640,000 borrowers get more than $50 billion in gross relief.
Meanwhile, as the Attorney General has indicated, no one who has inflicted damage upon our financial markets should think they are out of the woods just because of the passage of time.
2. Banks are bigger than ever. Too big to fail has gotten much worse. How do you guarantee that taxpayers won't pick up the tab the next time a large bank gets into a position to wreak havoc on the economy again?
Over the past five years, we've put an end to "too big to fail", and we've made sure taxpayers are no longer on the hook for Wall Street's reckless behavior. The landmark Wall Street Reform law did two things. First, it made sure our banks are less risky and better capitalized, which means they are less likely to fail. Second, it created new authorities to make sure regulators have the tools they need to wind down banks in an orderly manner in the event they do fail. This means no more bailouts, and it means no more "too big to fail."
Today, our banks hold more and better-quality capital than they did before the crisis. In fact, new rules will require the largest banks to hold even more capital. That will make sure they have an adequate cushion against losses, and it will reduce the chance any bank will fail. Reforms that are under way also prohibit banks that take deposits from consumers from engaging in risky hedge fund type trading unrelated to serving their customers' needs. This will make sure that middle class families aren't left holding the bag for risk-taking on Wall Street.
And if a big bank fails, Wall Street Reform ensures taxpayers aren't on the hook. The largest bank holding companies and nonbank financial companies designated for Federal Reserve supervision and enhanced prudential standards also must have "living wills" to provide a roadmap for resolving these firms through bankruptcy. In addition, new tools are now available to orderly and responsibly resolve financial institutions that pose a systemic risk to the financial stability of the United States. If such plans are not satisfactory to the regulators, they'll have the authority to impose stronger capital and liquidity requirements on those firms, or order them to divest assets and business operations to ensure the safety and stability of the financial system. Finally, Wall Street Reform makes it clear that when a firm fails, its shareholders, creditors, and the financial industry will bear the costs -- not taxpayers.
3. It seems to me that the financial crisis was basically caused by greed: greed by Wall Street bankers looking for short-term profits; greed by mortgage loan companies wanting instant profits and bonuses; greed by the rating agencies who did the will of the financial institutions they were supposed to regulate... What is being done to address the problem of greed? Government can't stop greed, but it can crack down on people who break the rules.
Wall Street reforms are making sure there is better alignment of interests between Wall Street and Main Street. Here's an example: Wall Street Reform instituted important corporate governance reforms that will keep management more accountable, including new say-on-pay rules which give stockholders a voice on executive pay and bonuses. Wall Street Reform also introduced reforms for rating agencies, and has made sure they'll be liable when their ratings are incorporated into offering documents. And, the Act's risk retention rule for asset-backed securitization will make sure Wall Street firms have skin in the game when they securitize products with risky loans, which will reduce incentives to maximize short-term profits. Lastly, the "Volcker Rule" that the President fought to include in Wall Street Reform goes more directly at some of the risky behaviors behind the recent financial crisis; it will ban banks from making risky bets when they're dealing with their customers' deposits.
4. Will the White House bring back the Glass-Steagall Act?
The President made clear from Day One that we need to pursue aggressive Wall Street reform to make sure this crisis never happens again. But, it's important to note that simply going back to Glass-Steagall wouldn't have prevented some of the problems that led to the crisis from happening. In fact, many of the worst failures -- including Lehman Brothers, AIG, and Bear Sterns -- were not by commercial banks. That's why we actually needed a more comprehensive set of reforms to solve the roots of our crisis, which is exactly what the President undertook through Wall Street Reform.
And today, our banks hold more and better quality capital than before the crisis, which ensures that if they make a bad bet, they pay for it -- not the taxpayers. The Federal Reserve conducts regular stress tests of the biggest banks to make sure they have enough capital to be able to withstand even severe downturns and to continue lending. New rules require the largest banks to hold even more capital to ensure there is adequate cushion against losses and reduce the chance any bank will fail.
We are also undertaking aggressive reforms of our banking system to ensure that banks can't use deposits from consumers to engage in risky trading that are unrelated to servicing those customers' needs. And Wall Street Reform put an end to "too big to fail" and bank bailouts. Big banks must keep "living wills" to provide a blueprint for regulators to wind them down in case they failed, and new liquidation authorities will help us resolve them in an orderly fashion no matter how big or small they are.
5. The Obama administration has alluded to a plan where both Fannie Mae and Freddie Mac play a decreasing role in the mortgage market, with private corporations stepping in as a replacement for this service. Can the administration please provide more information on its plan for this transition and how long they think it will take? Is the ultimate goal to have both Fannie and Freddie disappear, or simply play less of a role moving forward?
The President has a plan to create a better bargain for responsible, middle class homeowners. More than five years after the real estate bubble burst, our housing market has begun to heal. Now we need to build on that progress to make homeownership more affordable and secure -- including doing more to cut red tape and help homeowners refinance -- while also ending Fannie Mae and Freddie Mac as we know them so taxpayers are no longer on the hook for bad loans and bailouts.
Going back to the same bubble-and-bust housing system that caused the financial crisis is not acceptable. We need a rock-solid foundation for financing homeownership with a bigger role for the private sector, where taxpayers aren't on the hook for the irresponsible behavior or bad decisions of financial institutions. Let's finally put an end to an era where Fannie Mae and Freddie Mac could expect a bailout for risky behavior in pursuit of profits.
6. Why is the average family in the U.S. earning less than they were decades ago? What will the administration do to create greater availability of desirable full-time jobs?
We've cleared away the rubble from the financial crisis and begun to lay a new foundation for economic growth. Over the last 43 straight months, the economy has added 7.6 million private sector jobs, with broad-based job growth across industries. But the President knows that more work remains to be done to reverse trends that have been decades in the making. Recent brinkmanship in DC hasn't helped as the government shutdown and threats of defaulting on America's bills have done unnecessary damage to our economy. Business owners put hiring on hold. Paychecks, mortgages, and small business loans have been delayed. The benefits that seniors and veterans have paid for, earned and rely on were put at risk. And the shutdown slowed our economic growth while actually increasing the deficit.
The bipartisan compromise to end the government shutdown over the health care law is the right thing to do for the country. It reopens the government and pays our country's bills with no strings attached. With the threat of hijacking our economy behind us, it's now time to move forward and focus on creating jobs, continuing to cut the deficit, and strengthening the middle class.
In the weeks ahead, the President will keep his word to work with Democrats and Republicans in Congress to find common ground and create a better bargain for the middle class. Specifically, the President is asking Congress to pass a budget that focuses on the investments we need for our country's future and that create opportunity for the middle class. We need to invest in what works -- like education, infrastructure, and technology -- and cut what doesn't. That's how we'll build on the progress we've made to cut the deficit in half since 2009 -- through a balanced approach that eliminates tax loopholes and makes the tax code more simple and fair.
He also wants to work with Congress to fix our broken immigration system so everyone plays by the same rules. Let's help grow our economy by bringing millions of undocumented immigrants out of the shadows and give them the chance to earn their citizenship by paying a fine and taxes, passing a background check, and going to the back of the line. And, the President urges Congress to pass a farm bill that America's farmers and ranchers can depend on, that protects vulnerable children and adults in times of need, and that gives rural communities opportunities to grow.
The President believes that no political party has a monopoly on good ideas and he looks forward to working with Democrats and Republicans. Sometimes both parties may seem far apart on many issues, but that shouldn't stop us from making progress in areas where we agree. American families have made some tough decisions over the last few years, now it's time for Washington to do its part. It's time to end this hijacking of our economy once every few months and start moving our country forward
7. Why was it necessary to bail out firms such as GM and Chrysler when the bankruptcy laws were designed for these types of situations and were readily available?
When the President took office, the auto sector was in crisis, and he chose to bet on American auto workers. GM and Chrysler in particular were on the verge of collapse, which would have cascaded throughout the American economy, particularly on the auto suppliers, auto dealers, and communities that depend on the auto industry. In fact, the nonpartisan Center for Automotive Research estimated that the bankruptcy of GM and Chrysler would have resulted in at least 1 million jobs lost.
Five years later, as a result of the President's bold actions, the American auto industry is thriving again. The big three are gaining market share for the first time in twenty years and profitable for the first time in almost a decade. Auto sales in August were higher and growing faster than any month in over six years. And the auto sector has created about 340,000 jobs since GM and Chrysler emerged from bankruptcy in June 2009, which is the fastest pace in fifteen years.
8. I did everything financially right -- like buying a house that I knew I could afford; living below my means; saving up money and investing, etc. I lost my job and have not been able to get a job over the past four years. I have been living off of my savings and investments that were supposed to be for my future, and have managed to keep up on my bills and remain debt free (for now, at least). Where are the programs for people like me, who have done everything the right way?
The President has taken a number of key steps to support individuals who have lost a job and helping them get back to work. For example, the President fought to extend unemployment insurance, which made sure that 7 million people didn't lose their benefits in 2011 and 2012. Last year alone, unemployment insurance benefits kept 1.7 million people above the poverty line. In addition, the President has proposed aggressive investment in efforts to train workers for good-paying jobs in high-growth and high-demand industries, including through the Community College to Career Fund. The fund would invest in the nation's community colleges to help create a more skilled workforce by linking community colleges with the private sector, supporting programs that invest in apprenticeships, entrepreneurial training and on-the-job training opportunities as well as industry skill consortia that help identify and respond to pressing workforce needs.
But, President Obama knows that although we have made progress over the last four years, too many families are still struggling to make ends meet, and putting Americans back to work has to be job one. That's why the President is focused on a better bargain for the middle class. One of the cornerstones of the President's plan is to ensure that every American who is willing to work for it will have the opportunity for a good job that pays good wages. This includes efforts to simplify the tax code for businesses to create jobs and economic growth, rebuilding and modernizing American infrastructure, and supporting investment in U.S. manufacturing workers and technological innovation through the President's proposal for a national network of manufacturing institutes. And with evidence that the long-term unemployed face particular barriers in getting hired, President Obama has challenged the private sector, non-profits and government to join together in efforts to help these workers build their skills and find jobs.
9. Why does it seem we always have enough money to fight wars but never have money to keep our economy healthy?
The President ended the war in Iraq and is winding down the war in Afghanistan, all while rebalancing our fight against al Qaeda, but he knows that without a growing, thriving middle class, we won't have the resources or the resolve to solve these other issues.
As early as 2005, the President was talking about how the economy works best when it grows from the middle out, not the top down. This core philosophy has driven every decision that the President has made and is the foundation for his plan to move our country forward.
And the President understands that if we want to grow the economy and create jobs faster, the first order of business has got to be passing a sensible budget that replaces the sequester with a balanced plan that is both fiscally sound and funds the investments like education and basic research and infrastructure that we need to grow.
Furthermore, under President Obama, the deficit will have fallen by more than half by the end of the year, measured as a share of the economy. The nonpartisan Congressional Budget Office (CBO) projects that under the President's policies, the deficit will drop to 4.2 percent of the GDP in 2013 -- less than half the deficit the President inherited. This reflects both a stronger economy and the deficit reduction the President has signed into law.
Editor's note: This article has been updated to reflect that White House officials from the Council of Economic Advisors and National Economic Council answered the questions.