If the first six months of the Obama administration had a slogan, it would probably be Rahm Emanuel's oft-quoted axiom: "Never let a crisis go to waste." The government has space to do extraordinary things when Americans feel like their country is standing on a cliff edge (see: $787 billion stimulus package). But if you support re-regulation of Wall Street, our gangbusters stock and bond markets are going to leave a bittersweet taste in your mouth. Recoveries are good, but, as Felix Salmon writes, "we've wasted our crisis."
The bond market is on fire right now: Treasury is selling $115 billion of notes this week, with the 10-year bond yielding a whopping 5.1 percentage points more than the inflation rate -- the widest spread since 1994. Meanwhile, total corporate bond issuance in the first half of 2009 was an all-time high of $1.791 trillion -- more than anything we saw during the boom. This is what it looks like when markets clear: bond investors are seeing attractive yields, bond issuers are seeing abundant liquidity, and there's an enormous amount of pent-up demand for financing from the long wintry months when no deals could get done at all.
Meanwhile, the S&P 500 is closing in on the 1,000 mark, after having dropped below 700 in March. The primary market in stocks is already heating up again in places like China and Brazil, and assuming that stocks manage to stay at their current levels or higher will surely reopen in the US as well in 2010. Are we really back to normal already, as far as the markets are concerned?
And that's not even to mention the eye-popping profits of Wall Street's newest captains -- Golman Sachs and JP MorganChase -- who are, it turns out, the same as the old captains.
Why does it matter? Because Rahm is right. The impetus to enact bold reforms is strongest when we think troubled times call for bold reforms. It's likely that, with health care now scheduled to go into overtime, and cap-and-trade looming toward the end of the this year, we won't visit the issue of banking re-regulation until early 2010 at the earliest. That's a long time for stocks to climb, bank balance sheets to recover and politicians to feel like they don't need to remake Wall Street to save it. To be sure, this could be a good thing in the end. A regulation plan forged in the cauldron of crisis might have been a hasty and damaging lattice of regulations that choked profits and clogged markets. On the other hand, past economic crisis have positively contributed to our framework of banking policies and social programs. In politics, the cruel truth is that a crisis averted is also a crisis wasted.