It Takes Power to Control Power
The financial system must be reformed, not worshipped
Republicans like to pretend that they had nothing to
do with the enormous bank and insurance bailouts of 2008, forgetting that most
of them voted to support the "troubled asset" program, and that the
authors of the program were officials of the George W. Bush administration.
Rather than merely disowning those actions, the best
course is to ensure that we avoid future subsidies to the undeserving rich.
That means more regulation and smarter regulation, not less—and a direct
repudiation of arguments advanced by politicians of both parties in the
Today's ideological divide is between Republicans
who encourage anti-government fervor and market worship, and Democrats who
insist that government can and must balance corporate power by acting when
markets fail. No honest observer can still believe—as many once did—that the unbound
self-interest of financiers will correct excesses and direct capital to the
benefit of the broader economy automatically. No less a libertarian ideologue
than Alan Greenspan, the economic "maestro" who drew his inspiration
from the writings of Ayn Rand, admitted almost a decade ago that such blind
faith was naive and dangerous.
So it is important to cut through the fog of
militant ignorance represented by the Tea Party movement. If the public
actually wants to stop bailing out rich brats who make stupid and destructive
bets in the Wall Street casino, government must be empowered to oversee
derivative trading. And if the public wants a national economy that provides
decent jobs and useful goods—rather than super-profits for financial firms—then
government should encourage production and construction while sharply
Question the Bankers
Skepticism about the motives and wisdom of the
bankers is essential if we are to avoid suffering from their inevitable
mistakes and crimes. Until the onset of the crisis, in 2008, the broad
political assumption was that the reigning financiers were too smart and too
knowledgeable to be questioned, let alone arraigned.
Even in the wake of Enron, those "masters of
the universe" were permitted to pursue whatever deals and schemes they
wished, without accountability or transparency, because they told us that
public interference would ruin the prosperity they had brought us. At great
cost, we have learned otherwise—or should have. The full indictment is yet to
be handed up, but its particulars will range from irresponsible misdemeanors
and small-time scams to unprecedented billion-dollar larcenies.
Discredited as the financial powers are, their
wealth alone continues to provide them with wildly disproportionate influence
over the political process. Given the complexity of the modern global
economy—and the issues of derivative trading, consumer protection and the
winding down of too-big failures—it will be difficult for voters to judge what
qualifies as true reform. Fortunately, there are experts with years of
experience in the markets who seek to promote the public interest instead of
gaming the system.
Among their basic recommendations are simplification
and transparency in the financial markets, decreased leveraging, expanded
regulation, permanently restrained interest rates and an independent consumer
protection agency. At the very least, say independent experts such as Robert
Johnson, the former chief economist of the Senate Banking Committee, we must
prohibit institutions protected by federal deposit insurance from undertaking
deals that involve huge risks.
Moreover, we must end "too big to fail" by
ensuring that government has the power and resources to dismantle such
firms—without disastrous disruption and without enriching those who gamble
blindly, expecting taxpayers to reimburse their losses.
Democrats sound more serious than Republicans in
confronting these existential challenges to the economy, but will they go far
enough? Unless they can pass the necessary minimum reforms, we may someday find
ourselves facing a worse crisis—and regretting that we didn't restrain the
bankers when we had the chance.