I spent the morning Wednesday at the Time Warner building in New York City, participating in a conference sponsored by the Roosevelt (as in FDR) Institute titled “Make Markets Be Markets.” I don’t often — ok, ever — have the time anymore to go to conferences that I’m not speaking at. But the significance of this subject, and the prominence of the speakers, were too much for me to resist. And so at the crack of dawn, I scrambled to a 6 AM shuttle to make the 8 AM meeting in Midtown.
Everyone recognizes that our nation is in a financial mess. Too few see that this mess is not simply the ordinary downs of a regular business cycle. The American financial system walked the American economy off a cliff. Large players took catastrophic risk. They were allowed to take this risk because of a series of fundamental regulatory mistakes; they were encouraged to take it by the implicit, sometimes explicit promise, that failure would be bailed out. The gamble was obvious and it worked. The suckers were us. They got the upside. We got the bill.
So in coming to this meeting of some of the very best in the field — from Elizabeth Warren to George Soros — I was keen to hear just what the strategy was to restore us to some sort of financial sanity. How could we avoid it again? Yet through the course of the morning, I was struck by two very different and very depressing points.
The first is that things are actually much worse than anyone ever talks about. The pivot points of our financial system — the infrastructure that lets free markets produce real wealth — have become profoundly corrupted. Balance sheets are “fictions,” as Professor Frank Partnoy put it. Trillions of dollars in liability hide behind these fictions. And as expert after expert demonstrated, practically every one of the design flaws that led to the collapse of the past few years remains essentially unchanged within our financial system still. That bubble burst, but we can already see the soaring profits of the same firms that sucked billions in taxpayer funds. The cycle has started again.
But the second point was even worse. Expert after expert spoke as if the problems we faced were simple math errors. As if regulators had just miscalculated, like a pilot who accidentally overshoots the run way, or an engineer who mis-estimates the weight of cargo on a plane. And so, because these were mere errors, people spoke as if these errors could be corrected by a bunch of good ideas. The morning was filled with good ideas. An angry earnestness was the tone of the day.
There were exceptions. The increasingly prominent folk-hero for the middle class, Elizabeth Warren, tied the endless list of problems to the endless power of “the banking lobby.” But that framing was rare. Again and again, we were led back to a frame of bad policies that smart souls could correct. At least if “the people” could be educated enough to demand that politicians do something sensible.
This is a profound denial. The gambling on Wall Street was not caused by the equivalent of errors in arithmetic. It was caused by a corruption of the system by which we regulate those markets. No true theorist of free markets — and certainly none of the heroes of even the libertarian right — believe that infrastructure markets like financial systems can be left free of any regulation, including the regulation of rules against fraud. Yet that ignorant anarchy was the precise rule that governed a large part of our financial system. And not by accident: An enormous amount of political influence was brought to bear on the regulators of these core institutions of a free market to get them to turn a blind eye to Wall Street’s “innovations.” People who should have known better yielded to this political pressure. Smart people did stupid things because “the politics” of doing right was impossible.
Why? Why was their no political return from sensible policy? The answer is so obvious that one feels stupid to even remark it. Politicians are addicts. Their dependency is campaign cash. And in their obsessive search for campaign funds, they let these funders convince them that for the first time in capitalism’s history, markets didn’t need the basic array of trust-producing regulation. They believed this insanity because it made it easier for them — in good faith — to accept the money and steer financial policy over the cliff.
Not a single presentation the whole morning focused this part of the problem. There wasn’t even speculation about how we could build an alternative to this campaign funding system of pathological dependency, so that policy makers could afford to hear sense rather than obsessively seek campaign dollars. The assembled experts were even willing to brainstorm about how to educate ordinary Americans about the intricacies of financial regulation. But the idea of changing the pathological economy of influence that governs how Washington governs wasn’t even a hint.
We need to admit our (democracy’s) problem. We need to get beyond this stage of denial. We need to recognize that until we release our leaders from a system that forces them to ignore good sense when there is an opportunity for large campaign cash, we won’t have policy that makes sense. Wall Street continues unchanged because the Congress that would change it is already shuttling to Wall Street fundraisers. Both parties are already pandering to this power, so they can find the fix to fund the next cycle of campaigns.
Throughout the morning, expert after expert celebrated the brilliance in Franklin Roosevelt’s response to the Nation’s last truly great financial collapse. They yearned for a modern version of his system of regulation. But we won’t get to Franklin Roosevelt’s brilliance till we accept Teddy Roosevelt’s insight — that privately funded public elections tend inevitably towards this kind of corruption. And until we solve that (eminently solvable) problem, we won’t make any progress in making America’s finances safe again.
FixCongressFirst. Only then will sensible policy be possible. © 2010 Huffington Post
I thought this article was very interesting and at the same time made me more angry than I already am. People don’t seem to want to talk about the elephant in the room and deal with the real problem of corruption within our government. Until we have real election campaign reform where we take the private money out of the equation than we will continue to have the same ole same ole and this country will go off the cliff of no return. Our children and grandchildren will be the ones who really suffer because this country will be so bankrupted that they will not be able to work themselves and their future families out of the debt we are leaving them.
Yes, there is denial. There continues to be denial by those in our government that we need to find a way to live within our means and not continue to borrow money that we can’t pay back. We need to get out of debt and not continue to add more debt to the backs of our children to pay for Wall Street to continue to do what they have been doing. We need to cut spending and not continue to increase spending and not worry about the effects that await our children and grandchildren.
We need a government who will be honest with the American people and not a government who continues to LIE. We need men and women with backbone to serve in public office and government who will not do as they are told by those holding the strings. We need men and women with the courage to tell the truth and fight for real election campaign reform that takes all private money out of the equation and candidates each get the same amount of public money to work with. Media has to start allowing candidates free and equal air time. If the airways belong to the people than during elections all candidates should receive equal and free airtime.
No, I don’t hold much hope that we will see people in government working to find real solutions. I think alot of people don’t hold out much hope that future generations of America are going to have a good quality life. Yet, just because the odds are against us doesn’t mean we stop trying or stop fighting.
The question is what do we do as people who see this nation we love falling off the cliff toward its own destruction? We can see it happening and we try and stop it, but it just seems that no one is listening to our warnings and closer and closer we get to the edge of the steep cliff. Do we pretend like so many people are doing that the problems are not as severe as they really are? Do we pretend that our continued spending at the rate we are spending is really helping us dig out of this hole of debt we are in? How can we look at children today and not make the tough choice of doing the right thing for their future?
Both parties are a big part of the problem. Instead of rolling up their sleeves and working together as one government to find a way to deal with the problem; we have men and women who feel it is more important to be right than to do the right thing. I would hope that Progressives are waking up to the truth that it is better to vote third party and join a true Progressive party like the Green Party than to continue to believe that the Democratic party is going to be a true Progressive party. To many of us Progressives to still believe that the solution is to be found in the Democratic party is the same thing as believing in the easter bunny at the age of 50. Yes, when we were kids and Easter morning came and the easter baskets of candy and other good things our parents told us it came from the easter bunny. At some point we as kids learned the truth that there was no real easter bunny but our parents were the ones who bought the easter baskets.
I don’t know if people will come out of their denial. Sometimes I feel like the United States is the Titanic and I am one of the few who are trying to get people to life boats in time; while others are sitting on the deck drinking their ice tea and pretending that nothing is wrong and we aren’t sinking. How do we wake people up and get them to the point of deciding to start going to the life boat? How do we get people who are in denial to embrace the truth and start fighting to save the ship from sinking?