Wall Street, Heal Thyself

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During the Great Depression, anti-Wall Street protests led by communists and World War I veterans contributed to the defeat of Republican President Herbert Hoover. His successor, Franklin Delano Roosevelt, went on to sign reforms such as the Glass-Steagall Act in 1933, which barred commercial banks from engaging in investment activities for the next 66 years.

Does that mean history will repeat itself? A wave of new anti-Wall Street regulations may seem unlikely now, but that could well change if the world economy plunges into major crisis. And in such a scenario, the appetite among politicians of either party for a bailout of U.S. banks, should they need it, will be close to zero.

So here’s a message for Wall Street: heal thyself. The history of American business is rife with examples of industries that failed to respond to public pressure and instead had reforms imposed on them. The banks can start by rolling back things like Bank of America’s recent introduction of monthly fees for using debit cards. They could place limits on executive bonuses. And they could write off mortgage debt that almost surely won’t be paid back anyway.

Perhaps more important, Wall Street could stand to show more humility. Far from expressing contrition for their role in the economic collapse of 2008, the country’s largest financial institutions have spent millions trying to dilute such reforms as Dodd-Frank. “They have been very successful at fighting reform and watering down key components,” says West. “This is the backlash towards that kind of behavior.” Rather than resist the fight for a more fair and accountable financial system, Wall Street would be better served by joining it. That would be more than smart politics; it might also be the first step on the path to redemption.

Leonard is a reporter for Bloomberg Businessweek in New York. Ratnesar is deputy editor of Bloomberg Businessweek.