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**SEPTEMBER 8, 2023**
On the Prospect website
* David Dayen reviews Franklin Foer's
**The Last Politician**
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* Emma Murphy finds bilingual news deserts
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in areas with heavy Spanish-speaking populations
* Luke Goldstein reports on a new Biden administration rule that could
end the rail monopoly
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* Lee Harris breaks down Maine's November ballot initiative
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to create a public power company
Kuttner on TAP
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**** The Wasted Crisis
What did we learn from the financial collapse of September 2008? Not
enough.
Fifteen years ago this week, Wall Street was on the verge of the worst
collapse since 1929.
The cause was regulators' indulgence of opaque securities that were
highly leveraged and thinly capitalized, such as credit default swaps
and bonds backed by high-risk subprime mortgages.
When bankers' bets started going bad in 2007, the initial response of
the Fed and the Treasury was to prop up the system by merging failed
banks into bigger banks or having the government cover losses. In March
2008, when the investment bank Bear Stearns became insolvent, the
Federal Reserve guaranteed its bad loans to facilitate its acquisition
by J.P. Morgan.
Exactly 15 years ago today, the government took over the biggest players
in the secondary mortgage market, Fannie Mae and Freddie Mac, which were
underwater because the securities backing mortgages had plummeted in
market value.
But a week later, on September 15, the Fed and the Treasury decided that
enough was enough. They decided not to bail out failing Lehman Brothers.
And that collapse triggered a full-blown financial crisis.
The Financial Crisis Inquiry Commission later found that most money
center banks were literally insolvent. Had government not come to the
rescue with even more bailouts, the collapse would have triggered
another Great Depression. Yet these bailouts left existing executives in
place and did not break up a single large bank.
Presumably, Congress acted to head off another repeat of speculative
meltdown when it passed the Dodd-Frank Act of 2010. But 13 years later,
old abuses are repeating themselves in new forms.
Dodd-Frank was supposed to put an end to banks that were "too big to
fail." But today the system is more highly concentrated than ever. The
Treasury and the Fed were up to their old tricks when they encouraged
the largest of the banks, JPMorgan Chase, to bail out the failed First
Republic Bank
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making JPMorgan even bigger.
The latest banking crisis involves regional banks that are overexposed
to commercial real estate that keeps losing value.
**The Wall Street Journal** calls this a "doom loop." As a recent
**Journal** story explained
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banks not only overinvested in real estate loans. Between 2015 and 2022,
banks' direct lending to commercial real estate doubled, to $3.6
trillion, equal to 20 percent of their deposits. And banks more than
doubled their indirect real estate exposure with loans to mortgage
companies and to real estate investment trusts as well as
mortgage-backed bonds. Now, with the property market in free fall, banks
increasingly find that the collateral is worth less than the loans.
If this crisis spreads, the cause will be exactly the same as the cause
of the 2008 collapse: regulators and examiners failing to look closely
at risky fads in bank portfolios and failing to demand that risky
investments be backed by more capital. As long as regulators are more
concerned about coddling bankers than protecting the public, these
periodic financial meltdowns will keep recurring.
~ ROBERT KUTTNER
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A Hemmed-In Presidency
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In 'The Last Politician,' Franklin Foer unfolds Joe Biden's record
of achievement and command. But voters haven't gotten to see it. BY
DAVID DAYEN
Maine Tries to Take Back Its Utilities
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A ballot measure would convert two investor-owned power companies into a
public nonprofit. Unionized utility workers aren't sold. BY LEE HARRIS
A Potential End to Monopolizing the Rails
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The nation's rail regulator proposes that shippers receiving poor
service can get a competitor to carry their goods. BY LUKE GOLDSTEIN
Language Barriers Complicate the Geography of News Deserts
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Lack of access to local bilingual news isolates people who speak little
or no English. BY EMMA J. MURPHY
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