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The cardinal sin that could bring down the financial system again

Daily Ticker

They're baaaack. Banker bonuses on Wall Street last year clocked in at the highest level since before the 2008 financial crisis, with the average New York finance employee's bonus growing 15% in 2013 to $164,000, according to the New York State Comptroller.

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That's all fine and well, except that according to Bloomberg News editor Bob Ivry, the shenanigans of the biggest banks since the financial crisis have been astonishing. Detailing them is the premise of Ivry's new book The Seven Sins of Wall Street: Big Banks, Their Washington Lackeys, and the Next Financial Crisis.

The cardinal sins are centuries old, but the vices of gluttony, wrath, envy, pride, lust, sloth and greed can be applied to modern Wall Street, as Ivry writes about banks' hunger for size and bankers' prideful perception of competence despite the support of taxpayer bailouts.

And when it comes to what sin could contribute most to the next financial crisis, he thinks it's pride.

"If you have excessive pride, you think you're better than you are," he tells us. Pointing to the resurgence of bonuses at banks, he says these gains in finance are "becuase they had a heck of a lot of help from taxpayers and the Federal Reserve. It's not really because of their competence necessarily. So pride makes the other sins possible." 

In Ivry's view, the financial crisis was a “leveraged buyout of the U.S.,” where Wall Street captured Washington. Meanwhile, the Federal Reserve "swelled its balance sheet to $4 trillion just to transfer cash to [banks/bankers].” And the Dodd-Frank regulatory reform has “only added multiple layers of bureaucracy to the oversight of financial firms." 

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These bold statements aren't claims everyone would agree with. Others would argue the Fed's policies have also helped boost the housing market, driving home values higher which has helped underwater borrowers, while low rates have helped homeowners refinance to stay in their homes. That's helped banks but it's also had an impact on Main Street. Meanwhile, while there is plenty of evidence of the bureaucracy entailed in Dodd-Frank and criticism to be lobbed at it, the rules have also introduced more strigent capital requirements, sought to make derivatives more transparent and reign in proprietary trading, and have given the FDIC powers to put a megabank through an orderly bankruptcy.

Check out the video to see how Ivry substantiates his claims and what he would most like to see change about the banking system.

What do you think? Is Wall Street any better than it was in 2008? Follow The Daily Ticker on Facebook and Twitter '@DailyTicker'.

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