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“Crime, once exposed, has no refuge but
in audacity.”
With campaign finance reform, the need to
reform the financial markets is one of the greatest social policy issues of
our time.
Simon Johnson is one of the few 'name'
economists who recognizes this and is willing to talk about it.
There is a bitter campaign being waged in
the think tanks and the media against reform. The campaign is similar to that
which was waged for almost a decade to overturn Glass-Steagall.
Getting rid of bad government by
eliminating all government is just giving the real perpetrators what they
wish. What we need are the kind of rules and regulation that Simon Johnson
and Elizabeth Warren talk about here.
It is the kind of reform that Franklin
Roosevelt worked to put into place that lasted for almost 70 years, until the
forces of Wall Street were able to guile the people into handing over their
pursestrings to them once again.
What is discouraging is the deep
involvement of both sides of the aisle in the Congress in enabling this sad
corruption of the markets and the financial system-- for
money. And in particular how the moral and intellectual
processes of the state have become corrupted by the power of the moneyed
interests.
To put a fine point on it, once the
professional classes become cowed or corrupt, reform of the process through
systemic means is exceptionally difficult. What we have is deep
capture and the credibility trap reinforcing the worst of the abuses through
a series of punishments and rewards.
And what may be particularly galling is
when insiders who are at the locus of the corruption, like our recent crop of
presidential candidates on both sides, talk about how they will change
things, while the money is still flowing through their hands, and the spin is
flowing out of their mouths.
And alas, even some of the reformers seem
more interested in getting some of their own power and money than in
promoting real reform. We have a problem, not at the periphery of our
actions, but at the moral root of our thinking.
I have always enjoyed listening to
economist Robert Johnson's brief excerpt below, because it highlights the
very crux of the problem. Unless some of the well to do and the
professional classes shake off the lure of big money and the credibility
trap, and start acting responsibly, this is going to end very
badly.
And make no mistake, there are some of
the self-deluded and their servants who see that turmoil that may come as
just another opportunity for their looting and a rise to greater power as
they energize the mob for their own ends. But they forget the great
lesson of history, that once the madness is unleashed, it tends to serve none
but itself.
Why should anyone stop lying and
cheating, when they are so profitable under the rule of the modern gods of
the market, power and money? Why stop at all? And then
comes the inescapable agent of the downfall of excess, Nemesis, with
all that it implies.
I have no illusions. Given
the state of our condition, ninety nine percent of those who read this will
go on and do absolutely nothing differently for themselves or their
people. But it is in the moral one percent that there is some
hope for peaceful, evolutionary change.
The Banks must be restrained, and the
financial system reformed, with balance restored to the economy, before there
can be any sustainable recovery.
No More Cheating: Restoring the Rule of
Law in Financial Markets
The political debate about finance in the
US is often cast as markets versus regulation, as if “more regulation” means
the efficiency of private sector decisions will necessarily be impeded or
distorted. But this is the wrong way to think about the real policy choices
that – like it or not – are now being made. The question is actually what
kind of markets do you want: fair and well-functioning, with widely shared
benefits; or deceptive, dangerous, and favoring just a relatively few
powerful people?
In a speech on Wednesday, Senator
Elizabeth Warren (D., MA) laid out a vision for better financial markets.
This is not a left-wing or pro-big government agenda. Senator Warren’s proposals
are, first and foremost, pro-market. She wants – and we should all want –
financial firms and markets that work for customers, that encourage
innovation, and that do not build up massive risks which can threaten the
financial system and bring down the economy.
Senator Warren puts forward two main sets
of proposals. The first is to more strongly discourage the deception of
customers. This is hard to argue against. Some parts of the financial sector
are well-run, providing essential services at reasonable prices and with
sound ethics throughout. Other parts of finance have drifted, frankly, into
deceiving people – on fees, on risks, on terms and conditions – as a primary
source of profits. We don’t allow this kind of cheating in the non-financial sector
and we shouldn’t allow it in finance either.
The unfortunate and indisputable truth is
that our rule-making and law-enforcement agencies completely fell asleep
prior to 2008 with regard to protecting borrowers and even depositors against
predation. Even worse, since the financial crisis, the Securities and
Exchange Commission, the Justice Department, and the Federal Reserve Board of
Governors proved hard or near impossible to awake from this slumber.
We need simple, clear rules that ensure
transparency and full disclosure in all financial transactions – and we need
to enforce those rules. This is what was done with regard to securities
markets after the debacle of the early 1930s...
Read the entire piece here.
"The problem of the last three
decades is not the 'vicissitudes of the marketplace,' but rather deliberate
actions by the government to redistribute income from the rest of us to the
one percent. This pattern of government action shows up in all areas of
government policy."
"Most of them became wealthy by
being well connected and crooked. And they are creating a society in which
they can commit hugely damaging economic crimes with impunity, and in which
only children of the wealthy have the opportunity to become successful.
That’s what I have a problem with. And I think most people agree with
me."
Charles Ferguson, Predator Nation
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