resurrecting greenspan:
Hillary Clinton proposed that Congress show its bipartisan spirit by appointing an "emergency working group on foreclosures," to be led by none other than Alan Greenspan and earlier Federal Reserve Chairman Paul Volcker, and Clinton Treasury Secretary Robert Rubin. Her idea was for them to come up with a plan to alleviate the subprime and financial crisis. This seems like calling in arsonists to help put out the fire that they and their own constituency had set in the first place. Their lifelong interest, after all, had been to promote deregulation and special tax favoritism for their Wall Street constituency, highlighted by repeal of Glass-Steagall in 1999 under Pres. Clinton. Representing the banking sector and Wall Street (and hence being essentially Republicans in spirit), they were precisely the lobbyists most in favor of anti-labor, pro-creditor policies.
(...) ...it was Greenspan that acted as a kind of economic Karl Rove in crafting anti-labor policies favoring the very rich, above all the Social Security tax-shift onto labor's shoulders to which Mrs. Clinton pointed. He welcomed recession as an excuse to cut taxes, ostensibly to "jump-start" economic growth but actually producing a benefit mainly for wealthy investors and property owners.
(...) The Bush Administration's enormous commitment of public funds to support Wall Street prompted columnist Martin Wolf of the Financial Times to announce that the free market was dead. "Remember Friday March 14, 2008," he wrote; "it was the day the dream of global free-market capitalism died. Deregulation has reached its limits." The price for Treasury support would have to be an end to the deregulation that had permitted the debt crisis to reach such unprecedented proportions. As evidence of the new attitude Wolf cited "the remark by Joseph Ackermann, chief executive of Deutsche Bank, that 'I no longer believe in the market's self-healing power.'"
(...) Financial lobbyists accordingly anticipate that "the coming fight will rival the storm leading up to the 1999 passage of the Gramm-Leach-Bliley Act [which repealed Glass-Steagall]. That law made it easier for securities firms and banks to be owned by the same company, dropping regulatory barriers in place since the Great Depression. In 1998 and 1999, when Congress was finalizing passage of that law, the financial-services industry spent a combined $417 million on lobbying, according to the Center for Responsive Politics. In 2007, financial-services companies spent more than $402 million on lobbying, led by $138 million from the insurance industry."
(...) Repeal of Glass-Steagall gave the subprime debacle its jump start by removing the Depression-era roadblock from bank merging with brokers. This permitted financial conglomerates to be formed and gave them the ability to securitize (that is package), loans as investments. Vertical financial conglomerates were formed, starting with Citibank's merger with Travelers Insurance, and leading up to the recent intention of Bank of America to acquire the troubled Countrywide Financial, the nation's leading subprime lender.
(...) The implication is that anything that lowers costs to Wall Street--by rolling back regulatory bureaucracies and reporting requirements such as are called for by the Sarbanes-Oxley legislation--will be passed on to customers. Such presumptions ignore the fact that Wall Street prefers to pay out its profits as bonuses or dividends rather than pass on cost savings. What is passed onto its customers instead is runaway CEO compensation. "Market discipline" has not kept financial markets honest or low-priced. Deceptive subprime practices have made dollar investments a pariah in global financial markets. Investors have lost faith in the nation's investment bankers, mortgage brokers and credit-rating firms, drying up the market for U.S. mortgage-backed securities and leading to their being dumped across the board.
(...)What seems most remarkable in Mr. Paulson's and Dr. Bernanke's comments is the absence of quantitative discussion of just what the "systemic risk" is. The bailout is to be paid by the non-financial sector, above all labor ("consumers") to "save the system." But just what is the system? It certainly is not industrial production. It is more a faith that compound interest can keep on expanding ad infinitum. The reality is that the exponentially soaring debt overhead threatens to plunge the economy into chronic depression as interest and other financial charges eat further and further into the economy's ability to spend on consumption and tangible capital investment. To ignore this financial dynamic is to turn economics into a junk science.
(...) For the past decade the banking system and its mortgage-broker affiliates have avoided the usual wave of defaults and insolvencies by lending debtors enough money to pay the interest charges. Adding the interest onto the debt in this way is known as a Ponzi scheme. It requires an exponentially growing influx of funds to pay investors and creditors, and hence cannot be sustained for long, because no economy in history has grown at the exponential rates needed to keep up with the debt overhead. This is the basic problem at the core of today's economic policy. It aims to save the "sanctity of debt," that is, the financial sector's claims on the rest of the economy. But this attempt only polarizes the economy between creditors at the top of the pyramid and an increasingly indebted base at the bottom.
(...) So let's start by discarding the inane propaganda about unmanaged (that is, deregulated) "free" economies, the faith-based belief that self-regulating economic systems exist that must not be "interfered with" by government bureaucrats, formerly known as regulatory agencies, attorneys general and state prosecutors, Congressional oversight committees and what remains of New Deal agencies. This anti-government, anti-regulatory propaganda has been pushed for decades so that public agencies and Congress, supposed to act as representatives of the people, remain only passive spectators to an economy left in private hands for financial profit. The reality is that all economies are managed, either by the private sector or by government--usually by a combination of the two. Any successful economy engages in forward planning, and any well-balanced economy shapes how "the market" operates. Adam Smith's Wealth of Nations was all about how wise governments should shape--and tax--their markets. America's present-day economic system didn't evolve through natural forces, much less by divine intervention. Its industrial takeoff was subsidized by protective tariffs, internal improvements--that is, public infrastructure spending--and increasingly progressive taxation.