#CycleToWorkUAE: Building wealth through health

Major healthcare savings, improved road safety, cleaner air and a healthier pocketbook can result by swapping the Bugatti for the bicycle.

Without doubt, the biggest economic benefit of cycling is improved public health.

With the Health Authority Abu Dhabi (HAAD), PwC and Alpen Capital all naming the increased incidence of lifestyle diseases #x2013; diabetes, cardiovascular diseases and obesity-related conditions as the top contributor to rising health costs in the UAE #x2013; it#x2019;s clear that improving the country#x2019;s health is the largest positive benefit cycling brings. Almost a fifth of the UAE#x2019;s population has diabetes, according to the International Diabetes Association #x2013; the 16th highest incidence of the disease worldwide.

Daman, the national insurance company, estimates that diabetes will cost the UAE Dh10 billion per year by 2020 #x2013; and cardiovascular diseases were responsible for more than a third of the deaths in Abu Dhabi in 2013, the most recent year for which data are available, according to HAAD.

In the United Kingdom, where levels of obesity and diabetes are equally high, costs associated with these diseases consume 20 per cent of the national healthcare budget.

#x201c;Hopping on a bicycle can save your life #x2013; if a bicycle and decent streets to ride on are available to you,#x201d; writes Elly Blue, the author of Bikeonomics: How Bicycling Can Save the Economy.

Two studies in public health journals, cited by Ms Blue, show that each dollar spent on cycling infrastructure in US cities saved more than four times as much in reduced healthcare costs.

After London introduced a public bike rental scheme, medical researchers found that increased physical activity reduced heart disease among men and depression among women.

A similar intiative was launched in Abu Dhabi last month on Yas Island. You might think that an increase in health benefits from cycling would be counterbalanced by more road traffic accidents.

Road accidents are a major killer in the UAE, accounting for 12.2 per cent of the deaths in Abu Dhabi in 2013, according to HAAD. That#x2019;s only slightly less than deaths from cancer, which caused 12.9 per cent of deaths in the emirate.

But the evidence suggests that more cyclists faced fewer crashes, not more (see graph). This is known as the #x201c;safety in numbers#x201d; hypothesis.

One offered explanation is that the increased visibility of cyclists changes how drivers drive. When cyclists are a common sight, drivers take greater care.

Whatever the reason, the data does not suggest that having more cyclists on the roads leads to an increase in traffic accidents. A paper from the municipal government of the City of Copenhagen, where more than a third of the population cycles daily, attempted to measure the positive impact of cycling on the city and its environs.

This involves adding together the effects on road uses #x2013; shorter journey times, improved health, chance of accidents #x2013; and the broader social impacts #x2013; effect on road safety, air and noise pollution, congestion, and road deterioration.

Economists call social impacts #x2018;externalities#x2019;. Externalities can be negative: harms inflicted on bystanders such as air and noise pollution or road accidents, and as well as positive: for instance, the social benefits of a healthier population, and improved life expectancy.

Cycling in Copenhagen costs society and the individual #x20ac;0.08 per kilometre, compared to #x20ac;2.15 per kilometre to drive, and #x20ac;3.9 per kilometer to take public transport.

If you look at the social impact, cycling actually saves the city #x20ac;0.5 per kilometre cycled, mainly due to the reduced risk of lifestyle diseases.

This means that investments in cycling infrastructure can pay for themselves very quickly, especially given that they#x2019;re often cheaper to begin with.

One Copenhagen road intersection, the Gyldenlovesgade, was identified as the site of more road accidents than any other. A project to redesign the road took place in 2006 at a cost of about #x20ac;24 million.

The redesign reduced the number of accidents by 3 per year #x2013; equivalent, Copenhagen#x2019;s local government estimates, to a saving of #x20ac;8m each year in reduced health expenditures and fewer days taken off work.

That means it took just three years for the project to break-even. At 33 per cent per year, that is enviable rate of return on any capital project.

Similarly, the construction of 1 kilometre of cycle lane in Copenhagen has a net present value of #x20ac;0.6m over the course of 20 years, but costs only #x20ac;0.4m to build.

A national love of driving is not just bad for public health; it#x2019;s also much more expensive.

Infrastructure spending on roads and government regulations on parking, represent, in economic terms, large social transfers from non-drivers to drivers.

Even in countries where road taxes are high #x2013; the US, the UK and Denmark #x2013; user fees are not high enough to cover the social costs of motoring.

In the UAE, where road taxes are virtually non-existent and fuel prices are subsidised, the government#x2019;s role in encouraging driving is even clearer. In an era of low oil prices, these generous policies may start to look less attractive.

Elly Blue believes that the benefits of expanding road infrastructure are overstated.

She argues that highway construction projects are an example of what economists call #x201c;induced demand#x201d; #x2013; where an increase in the supply of a good also increases the demand for it. In short: building more roads leads to more cars on the road.

Todd Litman, a researcher at the Victoria Transport Policy institute, explains the concept as follows: #x201c;Congestion reaches a point at which it constrains further growth in peak-period trips,#x201d; he says. #x201c;If road capacity increases, the number of peak-period trips also increases until congestion again limits further traffic growth.#x201d;

So Dubai#x2019;s peak-time congestion will not necessarily be eased by building more roads.

The European Investment Bank invests in road projects across the European Union. When judging the benefits of new roads, it places significant emphasis on time-savings and reductions in congestion. The problem is that if the #x201c;induced demand#x201d; hypothesis is correct, new road projects could have significantly fewer benefits than the EIB estimates. Absent also from the EIB#x2019;s calculations is the consideration of the public health effects of increased road use.

The impact of any individual road project on public health is likely to be virtually zero. But aggregate spending on roads, and the increase in driving that results, is likely to contribute to poorer health.

When these kinds of considerations are factored in, the case for increased road-building becomes much more ambiguous #x2013; and the case for building infrastructure for cyclists instead of cars becomes stronger.

This is exactly what the City of Copenhagen found, when it compared the rate of return on cycling projects to the rate of return on road and rail projects.

Money spent making the city safe for cyclists actually went further than money spent on new roads. There is one more economic factor we should consider: happiness. Ask any regular cyclist, and they#x2019;ll tell you that cycling is fun. Since economics is the study of human welfare, this is not an irrelevant consideration. As John F Kennedy once said, exaggerating his case somewhat, #x201c;nothing compares to the simple pleasure of a bike ride#x201d;. He owned more than forty classic cars.


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Online Payday Lending Companies to Pay $21 Million to Settle Federal Trade …

Washington, DC – Two payday lending companies have settled Federal Trade Commission charges that they violated the law by charging consumers undisclosed and inflated fees. Under the proposed settlement, AMG Services, Inc. and MNE Services, Inc. will pay $21 million – the largest FTC recovery in a payday lending case – and will waive another $285 million in charges that were assessed but not collected.

“The settlement requires these companies to turn over millions of dollars that they took from financially-distressed consumers, and waive hundreds of millions in other charges,” said Jessica Rich, Director of the Bureau of Consumer Protection. “It should be self-evident that payday lenders may not describe their loans as having a certain cost and then turn around and charge consumers substantially more.”

The FTC filed its complaint in federal district court in Nevada against AMG and MNE Services and several other co-defendants, in April 2012, alleging that the defendants violated the FTC Act by misrepresenting to consumers how much loans would cost them. For example, the defendants’ contract stated that a $300 loan would cost $390 to repay, but the defendants then charged consumers $975 to repay the loan.

The FTC also charged the defendants with violating the Truth in Lending Act (TILA) by failing to accurately disclose the annual percentage rate and other loan terms and making preauthorized debits from consumers’ bank accounts a condition of the loans, in violation of the Electronic Funds Transfer Act (EFTA). MNE Services lent to consumers under the trade names Ameriloan, United Cash Loans, US Fast Cash, Advantage Cash Services, and Star Cash Processing. AMG serviced the loans.

In May 2014, a US district court judge held that the defendants’ loan documents were deceptive and violated TILA, as the FTC had charged in its complaint.

In addition to the $21 million payment and estimated $285 million in waived charges, the settlement also contains broad prohibitions barring the defendants from misrepresenting the terms of any loan product, including the loan’s payment schedule, the total amount the consumer will owe, the interest rate, annual percentage rates or finance charges, and any other material facts. The settlement order prohibits the defendants from violating TILA and EFTA.

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Dream speech

Dear Mr. President:

Please make the following two subjects the first part of your [State of the Union] speech. Emphasize these and move your laundry list to the second half because these are the ingredients needed to make your domestic and foreign policy list possible. The two are 1) the goal for the Congress, businesses and local governments to fund new wealth builders and 2) for you and our diplomats to market our secret sauce to the worlds peoples and governments.

You must make the speech in the form of telling two stories. It must be a Kings Speech.

The first story is about what underpinned the fabulous period of 1950 to 2000 when the government and private industry made Ramp;D investments which resulted in an unparalleled period of discovery and the invention and development of new technology, infrastructure, and our quality of life. These started with the innovations that began during WWII and followed with the investments in technologies to fight the Cold War, space exploration, The Marshall Plan, Medicare, and Civil Rights. Included are the Interstate system, our air transportation system, color TV, microprocessors, jet engines, the internet, automation, and fiber optic networks. These 50 years of discoveries and development were wealth builders that spread across the country. And now the impact of these has spread around the world so we need new wealth builders and wealth-building goals.

Your speech has to be about finding the new wealth builders such as high-speed-internet into every home and class room and inventing energy saving things, new healthcare delivery systems and products to be used here and exported, new medicines and cures, and education delivery.

You have to say that our new policies should be based on making peoples lives better and our need to build new wealth builders over the next 50 years. It means finding the new moon shots and Cold War surrogates. The Affordable Care Act and Infrastructure rebuilding are moon shots. You must ask Congress to move out of reverse.

The second story is about promulgating Americas secret sauce. This is our sets of laws which separate church and state which established all religions as a protected class. Our earliest laws prohibited states from choosing one particular Protestant sect as had occurred across both Catholic and Protestant Europe. Our forefathers in particular sought to escape petty bickering among sects and said the state will not endorse any one religion or sect (Methodist, Lutheran, Episcopal etc.) but will protect the members of all.

It tacitly endorsed Judaeo/Christianity but the way the laws were written allowed all religions to co-exist, be protected, and seek equal and fair treatment under the law. These laws became the foundation for other eventual civil rights wins such as the freedom of the slaves and minority and womens rights.

This means the US has to push across Europe, the Middle East, Asia, and Africa and ask these countries to write new constitutions which establish all religions as protected classes. It is the only way to fight Islamic extremism, dangerous dysfunctional religious prejudice, and harmful backwardness.

So you have to tell two stories first about how and why we need to find and invest in new wealth builders, and second, how and why we came up with the recipe for a great secret sauce and why its the crucial thing needed to achieve quality of life across the world. Continued…

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Share “El Paso high-tech guru’s bankruptcy filing…”

For more than a decade Holguin has tried to grow Secure Origins, a Downtown El Paso-based company aimed at using technology to speed commercial truck shipments across the border.

Holguin, a civil engineer by training, became an El Paso entrepreneurial super star and a high-tech guru in the 1970s, when he started a software development company that grew into Accugraph Corp., with $100 million in annual sales and 150 El Paso employees by the 1990s. The company was later sold and its operations moved out of El Paso.

Stephen Darling, in a bankruptcy court filing, argued that Holguin has failed to adequately value his 2 million shares of Secure Origins stock. For that and other reasons, Darling asked the court to reject Holguins financial reorganization plan.

A bankruptcy court hearing on Holguins plan is set for Jan. 14.

Holguin filed for personal bankruptcy protection in September, about two months after a state court ordered him to pay Darling almost $190,000 for the unpaid loan, which includes interest and attorney costs. The court cases came to light publicly only recently.

Holguin told the El Paso Times that he no longer holds any official position with Secure Origins, but, he said, he continues to work for the companys shareholders.

I had to make a major decision to even file for bankruptcy, Holguin said. If there was any other way for me to keep my obligation to the company, I would have done it. This was the only way left to fulfill my obligation to all the shareholders.

Everything I have is in the company (Secure Origins), Holguin said.

In his bankruptcy filing, Holguin lists his only income as $2,588 per month he and his wife receive in Social Security benefits. His main asset is his Upper Valley home, which he valued at almost $978,000 — the appraised value set by the El Paso Central Appraisal District.

Holguin said he left Secure Origins two years ago, when The Tecma Group, an El Paso company operating maquilas in Juarez for a variety of manufacturers, agreed to buy it. Tecma managed the company for about two years.

However, several months ago, Tecma officials decided not to buy the company and Tecma is no longer involved in it, said Alan Russell, Tecma president.

We had an operations guy try to turn the company around and get it on its feet, and we decided not to go forward with the option to buy Secure Origins, Russell said.

Darling said hes a shareholder in privately held Secure Origins. But, he said, his loan dispute with Holguin is not related to the company.

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Local bankruptcy filings decline in 2014

Area bankruptcy filings declined in 2014, continuing a downward trend following the Great Recession.

According to monthly filings from the US Bankruptcy Court’s Western District of Missouri, two of the most common personal bankruptcy codes, Chapter 7 and Chapter 13, both showed decreases this year.

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The Slow Strategy That Might Rebuild Middle-Class Wealth

Jason Reed/Reuters

The middle class is in terrible shape. Wages are stagnant, the middle class’s share of the nation’s wealth has been declining for decades, and ordinary Americans feel like they’re just exiting a recession that ended years ago. But could 2015 be the year that marks a turning point for rebuilding middle-class wealth? Two new retirement savings initiatives, myRA and Illinois’s Secure Choice, offer hope that financial security and wealth building aren’t relics of the past for the middle class.

One reason the wealth gap between middle-income and high-income earners is so stark is because of a lack of diversity of assets held by middle-income families. Middle-income wealth is locked up in the value of the home. Almost three-quarters of the wealth of middle-income families is held in a primary residence, compared to only 9 percent of the wealth of the highest 1 percent of income earners.

Families with higher incomes have more diversified balance sheets, allowing them to take full advantage of the growth, stability, and tax advantages offered by different asset types. During the past few years, the value of financial assets like stocks and mutual funds has risen much faster than housing prices, overwhelmingly benefitting higher-income households: The wealthiest 10 percent of Americans own 81 percent of all stock held directly, in mutual funds, or in retirement accounts.

That last one–retirement accounts–may come as a shock. 401(k)s are often thought to be a significant source of family wealth for the middle class. But only about 50 percent of families making around median income (in the 40th to the 60th percentile) even have a retirement account, and the median value of the assets in the accounts among those who have them is just $25,000. If you include the millions of Americans who don’t have a retirement account, the typical working-age household in the US has just $3,000 saved for retirement.

In order to rebuild middle-class wealth, building assets in forms other than housing has to be easier. Retirement assets are a good place to start, but doing so requires paying attention to the financial challenges that ordinary Americans face. Americans recognize that retirement savings are important, but 44 percent of households don’t have the kind of emergency savings cushion that financial advisors recommend as a first step. Is it realistic to ask these families to lock money away for 30 years when their personal safety nets are so weak?

It finally could be. Here’s why 2015 could mark the first steps on a new path toward greater, more diversified, and more flexible asset accumulation for the middle class.

In his 2014 State of the Union, President Obama announced the creation of myRA, or “my Retirement Account,” an opportunity for employers that do not offer retirement plans to connect their employees to a “starter” retirement account. MyRAs are essentially Roth IRAs invested in Treasury bonds, offering a safe, low-yield investment option. Once account balances reach $15,000, participants would roll the funds over into a Roth IRA offered on the private market. The concept is simple, but it could have a big impact. The reason? Roth IRAs allow workers to access their contributions at any time to weather unexpected expenses without taking out expensive debt or paying the taxes and penalties that make 401(k) withdrawals so painful. Think of it as an easy way to diversify assets through time: saving for the short- and the long-term simultaneously.

The other program that could improve middle-class wealth in 2015 is the Secure Choice Retirement Savings Program, which was signed by outgoing Illinois Governor Pat Quinn this week. Secure Choice would require employers with more than 25 employees to automatically enroll their employees in the Secure Choice plan. Employees could opt out at any time, but would be defaulted into saving 3 percent of their pay into a low-fee retirement account. Like the myRA, the funds would be invested in a Roth IRA structure so that employees would have access to the funds–penalty-free–if they need them for emergency expenses.

Secure Choice and myRA are promising because they are built on key principles that have been shown to promote sustainable, lifelong asset building. First, easy access is critical to promoting savings. Automatic enrollment, as in Secure Choice, has been shown to yield the highest participation rates, opening the door to retirement savings for as many as 2.5 million workers in Illinois. With myRA, although enrollment is not automatic, accounts could eventually be made available to all workers with earned income through online enrollment or by opening an account on the tax form. The second principle the programs share is that they allow for a diversity of uses. That’s critical, because families have myriad savings needs. For instance, saving for a retirement 20, 30, or 40 years in the future is not always appealing or possible for low- and middle-income families. Statistics bear that out: Over 25 percent of households that use a 401(k) have withdrawn money from it to meet non-retirement needs–and paid penalties in process. The Roth structure of both myRA and Secure Choice creates useable wealth in the near term while encouraging the pursuit of long-term goals. That’s a structure that will help many more families than the 401(k) model.

MyRA and Secure Choice won’t bring ordinary Americans much closer to the top 1 percent. But together they’re putting in place new models to help build up the wealth of the American middle class. 2015, you’re off to a pretty good start.

This post appears courtesy of New Americas Weekly Wonk magazine.

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FTC Reaches Its Largest-Ever Payday Lending Settlement

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Why Black Wealth Matters

OTHERWORDS-As protesters march through our cities to remind us that black lives matter, grievances about our racially fractured society extend far beyond flashpoints over police violence.

What is the state of the dream that Dr. Martin Luther King Jr. spoke about, particularly as it relates to economic opportunity? 

Racial inequality in earnings remains persistent. African-American workers under 35 earn only 75 cents on the dollar compared to their white contemporaries. Latinos earn only 68 cents.

Examining income alone, however, is like tracking the weather. If you want to explore the true tectonic shifts of the earth, you have to look at wealth and net worth — that is, what people own minus what they owe. 

There’s a high correlation between wealth and economic security. Wealth in the form of savings, investments, and homes provides a cushion to fall back on in the face of hardship. Homeownership in particular is a foundational asset, something to pass on to one’s children. 

The racial wealth gap has persisted for decades. It widened following the Great Recession.

According to the Pew Research Center, the median wealth of white households in 2013 was a stunning 13 times greater than the median wealth of black households — up from eight times greater in 2010. White households had 10 times more wealth than Latino households. 

While people of all races saw their net worth implode during the recession, recovery has come much more quickly to whites. The wealth divide is growing at an alarming rate today, with median wealth tumbling downward for people of color while ticking slightly upward for whites. 

This is partially because whites tend to own more financial assets, such as stocks and bonds, which have rebounded since 2009. Home values, meanwhile — which represent the largest share of assets for households of color — haven’t recovered at the same rate. 

Behind these statistics are stories of lives under stress, of people losing homes, jobs, savings, and stability. The collapse of middle class wealth has touched people of all races, but it has hit communities of color the hardest. 

“It is time for all of us to tell each other the truth,” Dr. King wrote in 1967, “about who and what have brought the Negro to the condition of deprivation against which he struggles today.” 

Such dramatic shifts in racial wealth disparities can’t be explained simply in terms of the latest recession. They’re part of a legacy of racial discrimination in asset building that dates back to the first great dispossession, when black people were treated as someone else’s property. 

Even a century after the formal end of slavery, African Americans were largely excluded from programs that helped build middle-class wealth. That led historian Ira Katznelson to characterize such initiatives as “white affirmative action.” 

In the decade following World War II, our nation made unprecedented public investments to subsidize debt-free college education and low-cost mortgages. These wealth-building measures benefited millions of mostly white households. 

People of color, facing overt discrimination in mortgage lending and separate-and-unequal school systems throughout the United States, generally didn’t share these benefits. They were left standing at the railway station as the express train to the middle class left.

White homeownership rates eventually rose to as high as 75 percent, while black rates peaked at 46 percent. This 30-point gap, which remains intact today, means generations of white families have enjoyed access to wealth that has long eluded their black counterparts. 

Black wealth matters. Until we tell each other the truth about the racial wealth divide, King’s dream will remain deferred.


(Chuck Collins is a senior scholar at the Institute for Policy Studies and co-editor of www.inequality.org. He is the co-author, with Bill Gates Sr., of Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes. This column was provided CityWatch by OtherWords.org)  Cartoon by Khalil Bendib






Vol 13 Issue 4

Pub: Jan 13, 2015


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In Bankruptcy With a $19000 Monthly Rent

The 2012 collapse of the law firm Dewey amp; LeBoeuf LLP disrupted the personal finances of many who worked there, from young associates left without a job to retirees caught up in collection efforts once the firm went into bankruptcy.

Partners accustomed to bringing home millions of dollars a year felt the pain, too, as evidenced by the personal bankruptcy filings of at least three ex-Dewey partners.

John Altorelli, the latest former Dewey partner to seek bankruptcy protection, filed for Chapter 7 in November to halt a $12.9 million lawsuit brought against him in the Dewey bankruptcy, according to a lengthy statement from his lawyer.

But behind the potential Dewey debtwhich seeks to claw back all the money he made at the firm in its final 4 1/2 yearsis an extravagant lifestyle that’s costing quite a bit of cash on its own. In a 90-page disclosure filed last week in US Bankruptcy Court in Bridgeport, Conn., Mr. Altorelli details how a monthly income of $134,611 is completely eaten up, and then some, by more than $196,000 in monthly expenses.

Many of those costs stem from real estate, including a $19,000 monthly rent for an apartment on Manhattan’s Upper West Side and $11,756 per month in mortgage payments for his seven-bedroom home in New Milford, Conn. He’s also footing the bill for two other Connecticut properties that, like his primary home, are worth less than what he paid for them.

Tack on $7,450 a month for a car service, nearly $25,000 in alimony and hefty tax obligations, and the monthly costs quickly rise.

Mr. Altorelli declined to comment Monday on his finances, which are laid bare in the filings. The disclosures also include a list of every household item, article of clothing, book and CD in his possession, including 32 suits, 70 ties, seven blenders, a 2008 Cadillac Escalade and a $16,000 watch. (Even his dogstwo Rottweilers and a German shepardget mentioned).

As Dewey began to crumble in 2012, Mr. Altorelli stayed almost until the end, leaving in April 2012 for the finance practice at global mega-firm DLA Piper. His new firm lent him $3.7 million, according to court filings, which he has to pay back. A DLA Piper spokesperson did not return a request for comment Monday.

All told, Mr. Altorelli lists assets of $5.1 million and liabilities of $27.6 million, including several Dewey-related debts and loans owed to Citibank, Barclays Bank, JP Morgan Chase Bank and Wells Fargo Bank.

Many former Dewey partners disposed of their obligations to the defunct firm back in 2012 by accepting a tough-to-swallow deal that asked them to return a portion of their Dewey earnings to benefit of the firm’s creditors. Mr. Altorelli could have paid $1.4 million as part of the settlement but chose to fight. By November, his lawyer said, he could fight no further.

Write to Sara Randazzo at sara.randazzo@wsj.com. Follow her on Twitter at @sara_randazzo

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How the Wall Street weasels won: Elizabeth Warren, Paul Krugman and the 1 …

Above all, as many as four million of the sixty million American homeowners with mortgages had fallen behind on their payments by early 2009 and were at risk of foreclosure. It took a home builder of unusually sunny disposition to invest in a new subdivision with this massive shadow inventory hanging over the market. A further ten to fifteen million households were encumbered with mortgage debts that now exceeded the value of their homes. For the moment, they were still current on their mortgages, but there was always the risk that they might walk away, adding their homes to the list of bank-owned properties. In addition to the drag on the construction sector, there were the losses for the banks. There was the deterioration of neighborhoods blighted by untended properties. Above all, there were the dislocation and suffering of families losing their homes.

In the 1930s the Home Owners’ Loan Corporation helped to mitigate these problems. But there was no HOLC this time. Instead the Obama administration responded with a set of limited initiatives that failed to deliver even on their own modest ambitions. The Home Affordable Modification Program (HAMP) was designed to provide financial incentives for banks and mortgage servicers to reduce interest rates for four million homeowners unable to make their monthly payments. Servicers satisfying program provisions received an up-front fee of $1,000 and further modest payments if the borrower remained current. But as of late 2013, just 1.3 million mortgages had been modified under the program. The government had spent barely a quarter of TARP funds earmarked for the purpose.

The Home Affordable Refinance Program (HARP) was designed to permit an additional five million homeowners not immediately at risk of foreclosure to refinance at lower rates. To qualify, a mortgage must have been acquired by Freddie Mac or Fannie Mae. Conveniently from this point of view, Fannie and Freddie now owned or guaranteed a majority of US home loans. Less conveniently, Freddie and Fannie’s independent administrator, Ed DeMarco, who was charged with rehabilitating the GSEs, resisted enlisting them in the cause. By mid-2011 barely a million homeowners had been helped, and by the end of 2013, six full years into the crisis, fewer than 3 million homeowners had availed themselves of this program. There were also initiatives for lending money to unemployed homeowners and transfers to the states for anti-foreclosure programs. But fewer than one in thirty homeowners were helped by these government programs, compared to one in ten in the 1930s.

Policy makers struggled with both ethical and budgetary dilemmas. A program narrowly targeted at delinquent homeowners would reward those who had stopped paying, using the tax dollars of others whose homes were also underwater but who nonetheless continued to make their payments. A program addressing the problems of all twenty million homeowners whose mortgages exceeded the value of their homes would, however, quickly become so expensive as to be politically toxic.

Alternatively, the foreclosure problem could have been addressed through changes in statute. Judges could have been empowered to restructure mortgages in personal bankruptcy proceedings, just as they restructured other debts. Senator Obama had sponsored legislation to this effect, and Candidate Obama endorsed the concept. But for President Obama, this would have meant losses for the banks, which preferred to extend and pretend–to hope that their problem loans would be repaid once the housing market recovered. Some loans might have to be written down, but the banks preferred to realize these losses later, when their condition was stronger.

And, despite the bailouts, the banks remained a powerful lobby. Community banks lobbied against legislation to allow bankruptcy judges to meddle with their mortgage portfolios, just as they had lobbied against deposit insurance in the 1930s. This created doubts that legislation empowering judges to restructure mortgages could attract the necessary supermajority of votes in the Senate. In any case, a policy that implied large losses for the lenders would have undermined Treasury’s strategy for rehabilitating the financial system, which was based on the banks’ earning their way back to health. Secretary Geithner opposed any form of intervention that meant losses for the banks. The Senate was quietly told that bankruptcy reform was not a priority of Treasury, and legislation aimed at revising the statute died a quick death.

It has been argued that the difference in the 1930s was decisive action to resolve the banking crisis. By declaring a bank holiday, closing down bad banks, and allowing only well-capitalized depository institutions to open, it is said, FDR strengthened the banking system sufficiently so that it could absorb losses from a more ambitious mortgage restructuring initiative. This, as we have seen, is inaccurate. The main thing FDR did was to provide a cooling-off period, some soothing words, and the capacity for the Federal Reserve to act as a lender of last resort through the Emergency Banking Act of 1933. Then as now, the banks were too weak for the government to force them to absorb large losses. The Home Owners’ Loan Corporation, recall, bought only mortgages that financial institutions willingly sold.

In fact, the HOLC could help as many as one in ten homeowners without massive budgetary costs and without imposing large losses on banks and other mortgage lenders because its help was limited to interest-rate relief. This was all many homeowners needed, since, given down payments of as much as 50 percent, few of them were underwater even with the sharp fall in house prices. The fact that more homeowners were underwater in 2009 as a result of having made smaller down payments made resolving the foreclosure crisis harder.

Finally, the greater complexity of mortgage finance made restructuring more difficult. Having purchased a mortgage, investors might lose as much as 40 percent if a home was repossessed; such were the costs of evicting the occupant, sprucing up the property, and putting it on the market. They therefore had an incentive to agree to at least some reduction of principal to keep the borrower in his or her residence. Homeowners, however, dealt not with investors but with mortgage servicers, who were set up to collect monthly payments if they were made and to foreclose if they were not. Servicers were not competent to restructure mortgages, as subsequent tales of lost paperwork and serial miscommunication made clear. Nor did the prospect of a $1,000 HAMP payment give them much incentive to acquire the capacity.

In principle, this was a problem that the public sector could solve. The federal government hired twenty thousand specialists to administer the HOLC and oversee mortgage restructuring in the 1930s. This time, in light of the greater complexity of mortgage finance, the commitment of manpower would have had to be greater still. But given pervasive distrust of big government, there was resistance now to doing anything similar.

* * *

The Great Depression and the banking crisis prompted passage of the Glass-Steagall Act, creation of the Securities and Exchange Commission and the Federal Deposit Insurance Corporation, and measures strengthening the power of the Federal Reserve to act as a lender of last resort. These reforms did not eradicate every trace of the earlier banking and financial system. The United States still had a large number of banks, matched now by a large number of regulators. The shadow of history was too long for it to be otherwise. Still, by creating deposit insurance, establishing a proper lender of last resort, and subjecting banks and securities markets to stricter regulation, policy makers drew the right lessons. By strengthening confidence in the banking and financial system and limiting risk taking, they inaugurated what was, in retrospect, a singular half-century of financial stability.

Financial reform this time was more limited. The most important explanation, alluded to above, was the very success of policy makers in preventing the worst. Building on the lessons of the 1930s, they averted an economic calamity on the scale of the Great Depression. The Depression discredited inherited financial arrangements. The implosion was so complete that there was little left to risk by radical reform. Unquestionably, the rescues of Bear Stearns, AIG, Citigroup, and Bank of America and the failure of Lehman Brothers were a shock. But this shock paled in comparison with the catastrophe that was 1933, when the banking and financial system was shut, the basis for the monetary standard was suspended, and economic activity ground to a halt. With things so bad, it was hard for the opponents to argue that root-and-branch reform would make them worse.

The other factor standing in the way of more fundamental 1930s-style reform was the size and complexity of the financial system. The complexity of megabanks like Citigroup, Bank of America, and Wells Fargo made breaking them up more easily said than done, however much the proponents of breakup asserted otherwise. Not only were the big banks still in business but, as a result of the shotgun marriages presided over by the authorities, they had grown even bigger. There was a wider range of financial institutions and instruments to be brought into the regulatory net, including hedge funds, insurance companies, and money market mutual funds. Because the cogs of the financial system were interlocking, radical reform of the rules governing one might have unintended consequences for others. If money market funds were obliged to hold costly capital, for example, they would have to reduce their returns. Investors would shun them, forcing the money funds to curtail their purchases of commercial paper. Hence reform of the rules governing money market funds might have a negative impact on the commercial paper market and impair the operation of the financial system as a whole.

Similarly, the existence of a wide variety of derivative instruments complicated efforts to drive their trading into clearinghouses and onto exchanges. Although easily standardized securities would survive such requirements, others might not. It was not clear which were which, or whether those that survived would mainly be the instruments used by farmers for hedging risk or speculators for manipulating it.

And derivative securities were traded not just in the United States but internationally. In the 1930s world of controls on capital flows, it was possible for national authorities to proceed unilaterally. But if other countries now failed to follow the United States in tightening regulation, transactions and the institutions undertaking them might simply move offshore, much as AIG Financial Products had moved offshore before the crisis. The $6.2 billion of trading losses incurred by JPMorgan’s Chief Investment Office in 2012 similarly occurred offshore. As former Senator Ted Kaufman, onetime chief of staff to Joe Biden and no friend of the financial services industry, put it, Bruno Iksil, the JPMorgan trader immediately responsible, wasn’t called the “London Whale” because he worked in Philadelphia.

The regulatory apparatus was similarly more complex. The United States had as many as seven separate bank regulators, each with its turf. Lobbying by regulators as well as the regulated made radical reform such as creation of a single consolidated bank supervisor impossible to achieve. Moreover, there now existed international standards for capital and liquidity, the Basel Accord, with which the United States had to comply. Compared to 1933, there were simply more facts on the ground. Incremental reform was still possible, but radical reform was hemmed in on all sides.

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There were two estimable congressional leaders in 1933, Carter Glass and Henry Steagall, but there were now two equally effective leaders in Congressman Barney Frank and Senator Christopher Dodd. Frank, the chair of the House Financial Services Committee, had an outsized ego even by congressional standards. Prone to strong statements and bad jokes, and conscious of his reputation as the quickest mind in the House, he did not shy away from denigrating his opponents. But he was able to master complex technical issues and had a knack for shepherding controversial legislation through committee. Dodd, chair of the Senate Banking Committee, ran a disastrous presidential campaign in 2008, and as a “friend of Angelo” he received mortgage loans on his houses in Washington, DC, and Connecticut from Countrywide Financial. But he was committed to forging a bipartisan consensus, and as a lame-duck senator who announced his decision not to run for reelection in January 2010, he saw successful financial reform legislation as his legacy.

The result was the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which sought to strengthen the system rather than overturn it. At its center were measures to raise capital and liquidity requirements, create a regulatory entity responsible for systemic stability, and protect consumers. Dodd-Frank applied capital requirements at the level of the bank holding company, and not just its commercial banking subsidiary, in order to limit holding-company smoke and mirrors. It specified more demanding capital requirements for banks holding financial derivatives. It required more capital in general.

Following a lengthy comment period, the regulators issued rules implementing these directives. Banks were required to hold equity capital in the amount of 7 percent of their risk-weighted assets. To limit their ability to manipulate their risk weights and shift assets off balance sheet, large internationally active banks were made subject to a simple leverage ratio of 5 percent, including off-balance-sheet exposures (and an even higher 6 percent for the eight largest banking organizations). Large banks were put on notice that, reflecting their systemic importance, they would be subject to capital surcharges to be specified later.

If a step in the right direction, this was still less capital and more leverage than many thought prudent. But in raising capital requirements, the Fed, the FDIC, and the Comptroller of the Currency were limited by the opposition of community banks, which warned that much higher capital requirements could put them out of business. In applying higher capital and liquidity requirements to the largest banks, they were influenced by warnings that heavier requirements would damage the ability of US banks to compete internationally. These questions were all mind-numbingly complex, making it hard for the public to counter the lobbyists.

Creating a regulator responsible for not just the health of individual financial institutions but the stability of the system was similarly more easily said than done. Although the Fed was the obvious entity to assume this function, it was not the most popular agency in town. The issue was taken up in March 2009, just when it was learned that the recently bailed out AIG Financial Products was paying retention bonuses of up to $6.4 million to seventy-three key employees. The Fed had provided the money to bail out AIG. It had known about the bonus payments but had no power to prevent them, or so it claimed. Later it emerged that AIG had been permitted to use the bailout funds to pay off obligations to Goldman Sachs at 100 cents on the dollar. Not only was the Fed aware of the fact, but it instructed AIG’s lawyers not to disclose to the SEC internal memos authorizing the payments.

Whatever the merits of the decision, rewarding the Fed with additional power was a political nonstarter under the circumstances. Not that bestowing those powers on the Treasury Department would have been more popular. With encouragement from Sheila Bair, Frank opted for a committee as the path of least resistance. The Financial Stability Oversight Council, as the committee came to be known, included the Fed and eight other regulators, along with the Treasury secretary in the chair.

Committees move slowly and can find it hard to take decisive action. The Oversight Council took nearly three years to designate two nonbank financial companies, AIG and General Electric Capital, as systemically important and therefore subject to consolidated supervision. Opting for a committee rather than a single systemic stability regulator was unfortunate from this point of view. This outcome again illustrated how chance events like the timing of AIG’s bonus payments could have long-term consequences.

Chris Dodd was quick to embrace the idea of a consumer financial products safety commission as a political winner. Frank and the White House similarly saw it as a way of doing something, at least symbolically, for Main Street. The creation of what came to be known as the Consumer Financial Protection Bureau was championed by Elizabeth Warren, the tireless Oklahoma-born Harvard law professor specializing in personal bankruptcy law. Warren’s campaign was sufficiently effective that her appointment to head the new bureau was blocked by deregulation-minded Republicans. Events took an ironic turn when that denial led Warren to run, successfully, for the Senate as a progressive Democrat in 2012.

The new bureau was charged with rooting out predatory and abusive practices like impenetrable mortgage documentation and up-front fees for debt-relief services that failed to materialize. Again the community banks resisted, on the grounds that they had not engaged in such practices and that the intrusion of a consumer protection bureau would complicate their lives. But the groundswell of support was irresistible. That the financial-services lobby was quick to complain of the bureau’s use of enforcement lawyers on examination teams and policy requiring regulated entities to turn over all internal compliance documents, including those protected by attorney-client privilege, is an indication that it got off to a fast start.

Derivatives regulation was the other major item on the agenda. The government was compelled to bail out AIG because of its $446 billion of bilaterally settled credit default swaps, default on which might have caused its counterparties to collapse. Reformers now proposed moving transactions in such instruments onto exchanges where they could be netted and cleared electronically, limiting the open positions of traders. Prominent among the advocates was Gary Gensler. This was the same Gary Gensler who was once the youngest person ever to be made partner at Goldman Sachs and who shepherded the Commodity Futures Trading Act, which deregulated trading in credit default swaps, while serving as undersecretary for domestic finance in the Clinton Treasury. But the crisis had opened his eyes, and as chair of Obama’s Commodity Futures Trading Commission he now pushed for moving derivatives trading onto electronic exchanges.

But exchange-based trading would have meant lower fees for the banks. It would have required standardizing derivative instruments and eliminating made-to-order business. The less-than-satisfactory compromise was to move settlement of derivatives transactions not onto exchanges but into clearinghouses. Self-organizing clearinghouses run by financial institutions were the main way banks cleared payments and dealt with failures prior to the advent of the Federal Reserve. Following that model, all institutions buying or selling a derivative security through a clearinghouse could be required to put up a margin payment. Those margin payments could then be used to make other counterparties whole in the event of the failure of one of their number.

The problem was that clearinghouses, by sharing risk in this way, also concentrate it. If several members fail simultaneously, the clearinghouse itself may be rendered insolvent and have to be bailed out. This reform, such as it is, may end up only creating yet more too-big-to-fail institutions. Whether this is a step forward only time will tell.

* * *

The remaining changes focused on filling the regulatory gaps revealed by the crisis. Dodd-Frank created a Federal Insurance Office in the Treasury to monitor the insurance industry and hopefully head off future AIGs. It created an Office of Credit Ratings in the SEC to oversee the rating agencies. It required the Federal Reserve to conduct annual stress tests of bank holding companies with $50 billion or more of total assets. It expanded the regulatory perimeter by requiring hedge funds to register with the SEC and revoking the exemption enjoyed by investment advisors with fewer than fifteen clients. Though these were useful steps, they were far from revolutionary.

Then there is what Dodd-Frank failed to do. It did not eliminate too-big-to-fail, either by breaking up the banks or by prohibiting them, Glass-Steagall style, from making risky investments. Instead, the six biggest banks–JPMorgan, Goldman Sachs, Bank of America, Citigroup, Wells Fargo, and Morgan Stanley–were allowed to grow 37 percent larger by the end of 2013 than in 2008-09, at the height of the crisis. Although Dodd-Frank gave the FDIC orderly liquidation authority–that is, the power to impose losses on a failed institution’s shareholders and creditors–simply bestowing that power doesn’t mean that the agency will be prepared to use it, especially if the result will be market disruptions and contagion to other financial institutions. The fact of large financial institutions operating across borders means that orderly resolution will require close cooperation between courts and regulators in a number of countries, in order to avoid a disorderly scramble for assets like what followed the failure of Lehman Brothers. Simply bestowing orderly resolution authority on a US agency does nothing to advance this.

A related provision of Dodd-Frank requires more than one hundred large financial institutions to provide the regulators with “living wills” describing how their affairs will be wound up in the event of failure. In the first such wills submitted in 2012, the banks described hopefully how their various divisions might be smoothly sold off to competitors. But those plans said nothing about who might buy the operations of a failed megabank in a crisis. They gave few grounds for confidence that regulators would be willing to euthanize a big bank given uncertainty about the consequences. Officials talked a good game about ending too big to fail. The reality was different.

The alternative to too-big-to-fail would have been too-safe-to-fail. Deposit-taking banks could have been turned into “narrow banks” permitted to make only safe and liquid investments. A strict version of Glass-Steagall, as advocated by Warren, could have been resurrected. But, again, radical reform was a bridge too far. Instead, the Obama administration settled for what came to be known as the Volcker Rule, championed by former Fed chairman Paul Volcker, which merely sought to ban trading for the bank’s own book rather than on behalf of its clients or as a way of hedging risks. This was a way for the administration to look as if it was taking tough action. Scott Brown’s surprise victory in the special election to replace Senator Edward Kennedy in January 2010, making him the first Republican to represent the Commonwealth of Massachusetts in the Senate in four decades, was enough for the president to stake out a more populist, antibank position. The Volcker Rule was a means to this end.

But its efficacy, like that of orderly resolution authority and living wills, was doubtful. The Volcker Rule was watered down to meet the objections of the financial services industry and obtain a sixtieth filibuster-proof vote from none other than Senator Brown. Rather than banning proprietary trading, banks were still permitted to invest up to 3 percent of their equity in such trades. In any case, it was unclear where to draw the line between legitimate hedging and market-making trades on the one hand and speculative trading for the bank’s own book on the other. The $6.2 billion of losses suffered by JPMorgan from bets placed by the London Whale highlighted the iffy nature of the distinction. JPMorgan described these as “legitimate portfolio hedging operations” compatible with the Volcker Rule, whereas an inspector for its embarrassed regulator, the Comptroller of the Currency, dismissed them as a “make believe voodoo magic ‘composite hedge.'”

The experience of the 1930s suggests that radical reform is possible only in the wake of an exceptional crisis. Absent that crisis, business as usual remains the order of the day, and radical reform that threatens to disrupt such business is ruled out. An exceptional crisis halts such business for a time. The problem starting in 2009, if it can be called a problem, was that policy makers managed, just barely, to prevent a 1930s-style crisis. There was still business as usual to conduct. Radical reform that interfered with customary banking practices could be criticized as jeopardizing the recovery then slowly getting underway. This left only strengthening the existing system, as opposed to replacing it. And the incremental nature of the reform process, which unfolded slowly as new rules implementing Dodd-Frank directives were proposed by the regulators, allowed concentrated interests, notably the bank lobby, to re-form and mobilize in opposition.

Radical reform, 1930s style, may have appealed in principle, but it proved impossible in practice.

Excerpted from Hall of Mirrors: The Great Depression, the Great Recession, and the Uses — and Misuses — of History by Barry Eichengreen. Published by Oxford University Press. Copyright 2015 by Barry Eichengreen. Reprinted by permission of the publisher. All rights reserved.

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