Bogeyman Regulations

John McCain is calling for a “9/11 Commission”-style probe of the financial crisis to find out what caused it, although he has already decided the blame resides with “the old-boy network and the corruption in Washington.” Meanwhile, his running mate Sarah Palin said “We are going to reform the way Wall Street does business and stop multi-million dollar payouts and golden parachutes to CEOs who break the public trust.”

Although the commission idea has a certain amount of retro charm, I don’t believe the causes of the financial crisis are any big mystery. And the “multi-million dollar payouts and golden parachutes to CEOs who break the public trust” are just a symptom of the disease, not the disease itself.

One factor the wingnuts cannot truthfully blame on the financial mess — which of course doesn’t mean they won’t do it — is excessive government regulation. The nondepository institutions like Lehman Brothers that are collapsing right now got government off their backs several years ago. In fact, that’s when the trouble started.

There’s a good background article by David Lightman at McClatchy Newspapers that explains what happened, and I urge you to read it all. In a nutshell, what happened was the Reagan Revolution and the fantasy that markets and securities can regulate themselves without government oversight.

This isn’t just a problem with “Wall Street.” The entire financial system is breaking down. Further, the rolling disaster we’re seeing now could not have happened had some critical New Deal regulatory programs been left in place. For example, Lightman explains how dismantling the 1933 Glass-Steagall Act led directly to what’s happening on Wall Street.

Lightman also says that President Clinton signed the Glass-Steagall “reform” into law, which is true. But the driving force behind getting rid of Glass-Steagall was then-Senator Phil Gramm, who is now Senator John McCain’s economic adviser and a co-chair of his presidential campaign.

The talk is that if McCain is elected, Gramm would be first in line to be treasury secretary.

The free market true believers remain in denial of what’s actually happening, which tells me they will not learn from experience, and there’s no point pretending they will. Our only recourse is to be sure they aren’t the ones making real policy.

Good Reads:

Sasha Abramsky
on McCain’s pathetic attempt to capture the Reagan magic.

In Candidates, 2 Approaches to Wall Street” reveals McCain’s bottomless hypocrisy.

On Wall St. as on Main St., a Problem of Denial.” Or, why smart executives make stupid choices.

10 thoughts on “Bogeyman Regulations

  1. The Precise Problem With Palin

    There is an article in today’s Salon called “The pastor who clashed with Palin” By David Talbot which concerns itself with Sarah Palin’s religious fundamentalism as it relates to government.

    The primary focus of the article is the interactions between Palin and Howard Bess, a retired Baptist preacher from Wasilla’s nearby neighbor town Palmer, Alaska. Bess, the author of a book entitled “Pastor, I am gay,” originally came into conflict with Palin over book banning, and eventually on other social issues as well.

    One issue was abortion. This from the article:

    Soon after the book controversy, Bess found himself again at odds with Palin and her fellow evangelicals. In 1996, evangelical churches mounted a vigorous campaign to take over the local hospital’s community board and ban abortion from the valley. When they succeeded, Bess and Dr. Susan Lemagie, a Palmer OB-GYN, fought back, filing suit on behalf of a local woman who had been forced to travel to Seattle for an abortion. The case was finally decided by the Alaska Supreme Court, which ruled that the hospital must provide valley women with the abortion option.

    The thing that shook me up the most in the article was a quote from another local progressive that raises the issue of Palin’s knowledge, beliefs and clear danger if she were to become president:

    Another valley activist, Philip Munger, says that Palin also helped push the evangelical drive to take over the Mat-Su Borough school board. “She wanted to get people who believed in creationism on the board,” said Munger, a music composer and teacher. “I bumped into her once after my band played at a graduation ceremony at the Assembly of God. I said, ‘Sarah, how can you believe in creationism — your father’s a science teacher.’ And she said, ‘We don’t have to agree on everything.’

    “I pushed her on the earth’s creation, whether it was really less than 7,000 years old and whether dinosaurs and humans walked the earth at the same time. And she said yes, she’d seen images somewhere of dinosaur fossils with human footprints in them.”

    Munger also asked Palin if she truly believed in the End of Days, the doomsday scenario when the Messiah will return. “She looked in my eyes and said, ‘Yes, I think I will see Jesus come back to earth in my lifetime.'”

    And this from Bess:

    Forget all this chatter about whether or not she knows what the Bush doctrine is. That’s trivial. The real disturbing thing about Sarah is her mind-set. It’s her underlying belief system that will influence how she responds in an international crisis, if she’s ever in that position, and has the full might of the U.S. military in her hands. She gave some indication of that thinking in her ABC interview, when she suggested how willing she would be to go to war with Russia.

    It is the clear danger of extreme religious views combined with the age and health history of John McCain that should make all voters review the potential of a radical creationist with a finger on the nuclear (noo-clee-ar) button.

    Under The LobsterScope

  2. Great dear Maha! Look how stupid we are! (one of your comments yesterday said, “I hate to say it but the test results indicate we are all dumb as dirt!”) Since the rise of Reagan we have all been hooked on this “trickle down” economics nonsense! Its all based on the idea that we can continue to get everything we want for no price. I think the sprawl of our cities is as good example of this mantra as anything. The Republicans continue with these types of ideas – and unfortunately it continues to work…

  3. Lightman’s review is right on point, but he left out perhaps the most important point. He says: “That created a solvency crisis for the banks that loaded up on them [MBS or mortgage securities with high rates]— and virtually all of them had.” The critical point is this: there is fierce competition among banks for customer deposits and among non-depository institutions for shareholder returns. Since SOME banks and institutions held the MBS, they were able to offer higher deposit rates and shareholder returns, thus they were able to take customers/investors away from the prudent institutions. It became a survival NECESSITY, not just something some institutions did, to load up on MBSs. Quite a vicious circle, until one day someone noticed they were buying things that had no actual value, just market value, and the Wall came tumbling down.

  4. ever hear ” karma will beat the hell out of dogma” ?
    well to paraphrase that ” reality will beat the hell out of dogma”.

    Blind allegiance to ideology and the repetition of mindless unquestioning phrases

  5. If we step back in time, we see that there is a cycle of regulation versus deregulation that repeats over and over. It parallels the cycle of liberalism versus conservativism that repeats over and over in this country.

    Economic crashes come from unregulated markets. And the crash comes, then regulations are applied, “so this never happens again”. When the generation which remembers the pain of the crash dies off, the regs are then stripped away, and history repeats.

    This is simplistic, but it gets to the essence of why regulation occurs and why deregulation occurs. People don’t learn from history, or rather the greed of some strips away hard learned safeguards put into place from earlier times.

    Sadly, people are going to have to learn (once again) the hard way. Even sadder, this country is nowhere near the good position it enjoyed when it weathered the Great Depression. America is going to emerge from this chastened and much weaker. It’s quite possible there won’t be an “America” by the time it all ends.

    btchakir (#1) – I’m actually less afraid of Palin’s religious views – disturbing as they are – as I am by 1) her many abuses of power and serial lying, fueled by a powerful sense of self-righteousness (fueled by her religious views) and contempt for those not on her team, and 2) her utter ignorance of anything in the larger world, and her complete willingness to be a pawn and a blank slate for the the powerful far right interests who have chosen her as their girl.

    She really is George Bush in a skirt, without the famous family name and contacts, but lots of natural charm in its place. She’s even more ignorant and frightening than Bush, and fortunately the press is less willing to cover for her than they were for Junior. Sociopaths are very good at mimicry, at faking human concern, and she’s even better at this than Bush. She isn’t quite as skilled an operator as Bush – all the misdeeds and scandals that have come out right away are really amateur league compared to the long and carefully buried history of the Bush family.

  6. The regulation of the marketplace is one of the reasons I’m a Democrat. The very goal of capitalism, simply put, is “the greatest profit for the least expense of capital.” Without rules to that game, all sorts of inhumane abuses occur– to workers, consumers, investors, insurers, and borrowers. Moonbat’s first two paragraphs, in the comment above, perfectly describe the ebb and flow of regulation throughout American history. We protect the vulnerable parties in our system, but only as long as we can remember the last “crash,” or outrage.

    We can’t stress this enough over the next 49 days: if McCain wins, then Phil Gramm– an architectural partner for the clusterfudge we’re in now– will be a key economic adviser in the new administration. He may well be McCain’s Treasury Secretary. If that doesn’t wake up voters, I don’t know what will.

  7. Check out George Will’s patronizing free market parable in the September 22 NEWSWEEK. Talk about your disconnects between theory and practice!

  8. Maybe we should require our representatives to take a history lesson BEFORE they start making decisions. Sort of a “No Politician Left Behind” thing.

    I think this quote applies to our mess.

    George Santayana, a notable philosopher, coined the phrase, “Those who do not learn from history are doomed to repeat it.”

  9. McCain is right..we need to incorporate our financial markets under Homeland Security’s oversight and protection. Just like with our intelligence agencies prior to 9/11 where the left hand didn’t know what the right hand was doing, our financial sector is failing because of ineffectual exchange of information between mortgage banks, brokerages houses, commercial banks, saving and loans, and credit card companies….Oh, and insurance companies and underwriters.

    I don’t agree with McCain on the need for a 9/11 type commision to study the causes of the recent financial failures. He’s already figured it out…basic Wall Street corruption and poor intra-institutional communications. But. I do agree that only him and Sarah are capable fixing the mess we find ourselves in. After all, McCain has significant banking experience he gained from Silverado Savings and Loan.

  10. Good speech by only criticism is he didn’t emphasize Iraq enough. I know it’s a touchy subject to criticize Bush’s illusion of success with the surge, but our ecomomy has a gapping hole in it that’s spilling out 10 billion a month. And out of that 10 billion we’re paying some 600,000 Iraqis not to rock the boat with violence. The lull in violence is not an accurate indicator of the situation in Iraq, and I feel that Americans are being sucked into an illusion and a big mistake by putting Iraq on the back burner. Or not giving it the attention it deserves.

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