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Said without Joy: We Told You So
Is it fair to complain about the actions of the financial deregulators?
Could anyone reasonably have foreseen the consequences of a decades-long regulatory holiday for the financial sector?
In a word, yes.
In preparing "Sold Out: How Wall Street and Washington Betrayed America," a report that documents a dozen deregulatory steps to financial meltdown, it was remarkable to see that, at almost every step, public interest advocates and independent-minded regulators and Members of Congress cautioned about the hazards that lay ahead. Those ringing the alarm bells were proven wrong only in underestimating how severe would be the consequences of deregulation.
Policymakers ignored the warnings. Good arguments could not compete with the combination of political influence and a reckless and fanatical zeal for deregulation. $5 billion -- the amount the financial sector invested in the financial sector over the last decade -- buys a lot of friends.
Example: Consumer groups warned of a growing predatory lending scourge at the beginning of this decade (and even in the 1990s), before the housing bubble inflated.
"While many regulators recognize the gravity of the predatory lending problem, the appropriate -- and politically feasible -- method of addressing the problem still appears elusive," wrote the National Consumer Law Center and the Consumer Federation of America in January 2001 comments submitted to the FDIC.
What was needed, the consumer groups argued, was binding regulation. "All agencies should adopt a bold, comprehensive and specific series of regulations to change the mortgage marketplace," the groups wrote, so that "predatory mortgage practices are either specifically prohibited, or are so costly to the mortgage lender that they are not economically feasible."
Example: In 1999, Congress passed the Gramm-Leach-Bliley Act, which eliminated the Glass-Steagall and Bank Holding Company Acts' longstanding ban on combining commercial banks and investment banks, or commercial banks and other financial service providers. This law paved the way for the creation of Citigroup, a merger of Citibank and Travelers Insurance, and helped infuse the speculative go-go culture of investment banks into commercial banks.
When Citibank and Travelers announced their merger in 1998 -- a marriage that could only be consummated if Glass-Steagall and related rules were repealed -- my colleague Russell Mokhiber and I wrote, "Expect to see lots of bad loans, bad investment decisions, teetering banks and tottering insurance companies -- and a series of massive financial bailouts of new conglomerates judged 'too big to fail.'" We didn't envision exactly how the Citigroup and Wall Street debacle would play out, but we got the outline right. Our predictions echoed the warnings from consumer advocates.
Example: In 1998, the Commodity Futures Trading Commission (CFTC) suggested the need for regulation of financial derivatives. In a concept paper, the CFTC wrote that, "While OTC [over-the-counter] derivatives serve important economic functions, these products, like any complex financial instrument, can present significant risks if misused or misunderstood by market participants." The agency suggested a series of modest potential regulations that might have restrained the proliferation of financial derivatives and required parties to set aside capital against the risk of loss (a policy that likely would have saved taxpayers tens of billions or more in the AIG bailout).
But the CFTC initiative was crushed by the then-Committee to Save the World (so designated by Time Magazine) -- Treasury Secretary Robert Rubin, Deputy Secretary Larry Summers and Federal Reserve Chair Alan Greenspan. In 2000, Congress passed a statute prohibiting the CFTC from regulating financial derivatives.
Example: In 1995, Congress passed the Private Securities Litigation Reform Act, which made it harder for defrauded investors to sue for relief. Representative Ed Markey, D-Massachusetts, introduced an amendment that would have exempted financial derivatives from the terms of the Act. Representative Chris Cox, R-California, who would go on to head the Securities and Exchange Commission under President Bush, led the successful opposition to the amendment.
Markey anticipated many of the problems that would explode a decade later: "All of these products have now been sent out into the American marketplace, in many instances with the promise that they are quite safe for a municipality to purchase. ... The objective of the Markey amendment out here is to ensure that investors are protected when they are misled into products of this nature, which by their very personality cannot possibly be understood by ordinary, unsophisticated investors. By that, I mean the town treasurers, the country treasurers, the ordinary individual that thinks that they are sophisticated, but they are not so sophisticated that they can understand an algorithm that stretches out for half a mile and was constructed only inside of the mind of this 26- or 28-year-old summa cum laude in mathematics from Cal Tech or from MIT who constructed it. No one else in the firm understands it. The lesson that we are learning is that the heads of these firms turn a blind eye, because the profits are so great from these products that, in fact, the CEOs of the companies do not even want to know how it happens until the crash."
There was nothing inevitable, unavoidable or unforeseeable about the current crisis.
At every step, critics warned of the dangers of further deregulation. But with the financial sector showering campaign contributions on politicians from both parties, investing heavily in a legion of lobbyists, paying academics and think tanks to justify their preferred policy positions, and cultivating a pliant media -- especially a cheerleading business media complex -- the sounds of clinging cash registers drowned out the evidence-based warnings from public interest advocates and independent-minded government officials.
- Posted in
41 Comments so far
Show AllSioux Rose
Thank you Robert Weissman for so often exposing the dark underbelly of the beast of global (and domestic) corporate capitalism without conscience.
In addition to the points you raised and were astutely prophetic about, there was also the example of a similar marriage between banks and speculation that helped facilitate The Great Depression, so a precedent for which precise behaviors to avoid has been set, and purposely violated. What is most deeply and profoudly troubling is that the orchestrators of the current collapse ARE the ones still in the proverbial driver's seat. Seems to me this is the fiscal equivalent of giving the car keys to the idiot who just crashed your prized Corvette. Shame on Obama for retaining this SCUM back in positions where they are FREE to do more harm. And for those who think the criminals know how to undo the crime, please... that's the last thing on their to do list!
Nice post. Just a little correction on wording, ala Thom Hartmann: it's "The First Republican Great Depression", not simply the Great Depression. And we're in the Second Republican Depression now.
Sioux Rose
DAVE B: Thank you for making the complicity of both parties, two sides of a coin that represents "the ruling class" clear. I'm sure you share my wrath and outrage that the same engineers of the crisis have been given the keys to the kingdom to purportedly "fix" it. The fix is in all right!
Amen to that Sioux Rose...
I think you are mistaken; there has been a loud, ongoing mantra about "too much government" from the Repug since before the Reagin years. Too many people, including Dems have bought into this drumbeat and repealed or weakened protections that inacted after the Depression; and our stupidity has come home to roost! And way too many Americans, who had nothing to do with this financial mess, are paying the price for Wall Street's recklessness. It is time for the Repugs and all you "free market capitalist" to admit that we need some government to protect the majority of citizens from the greed, avarice, glutony and sheer stupidity of some members of our society - especially the ivy league know it alls and their arrogance about all things money. Clinton bought into this bad advice of unrestrained free trade and less regulation; he was misadvised and so where you. It is the people who just "can't help themselves" and can't say NO to the lure of money at all cost to someone else. GREED, GREED, GREED.
Yes, I did support SoS Hilary Clinton for President, AND I would do it again in a heartbeat! She was the best candidate as far as I am concerned, but, I like so many others was out-voted; President Obama is now the President and I will support his efforts to rectify the mess that was to us to clean up.
I do not make excuses for President Clinton; he has a staff to do that. Despite his mistakes and errors in judgement, he was able to lead us to 8 years of peace and prosperity, numerous legislative achievements and when he left office, he left our country with a financial surplus of 250+ billion dollars! That was nothing to sneeze at, but Dubya spent it all the first 2 years by giving the filthy rich a tax cut and lying to get us into an unnecessary war.
The point of my response to your original post was to say that the financial mess has been coming for a LONG TIME! It started with Nixon, then Ford, then Carter; Reagin and his ongoing badmouthing of government, it continued with Bush I, Clinton, then Dubya and his nut cases finished us off real good! It was a dismantling of protections in the name of "free trade". Congress in both the hands of the Repugs and Dems helped with the mismantling by repealing legislation going back to the late 1920's and 30's.
Please take off your tunnel-vision glasses; we are all in this together and your misplaced anger is just wasted energy.
It was the righties who declared war on the middle class, no question about it. They saw the 60'sd as being the result of us having a comfortable middle class, and wanted to make sure that it didn't happen again. So they set about the dismantling of our social safety net, our jobs, our pensions, our college educations, our comforts and our ability to actually tell the gov't what to do. They knew that a comfortable, secure people will take control of it's gov't, like we were SUPPOSED to be able to do, and make the gov't do the right thing more often than not. They saw us essentially "hound" Nixon out of office, and set about to make sure that such a thing cound never happen again. The fact that W survived his whole presidency is proof that they did their jobs well.
As to Carter, he was too good a man to be a successful president. The reason we had a recession durin ghis time was because he was doing the right thing, not the popular thing, and was paying off the debt we had accrued during Viet Nam. The prices shot up, because gov't was paying off it's debts, and was costing us all more as a result. Quite honestly, I LIKED Carter, and I thought that if this country had a moment of clarity, it would have realized that he was doing the right, the honorable and the necessary thing. As a result, he got blamed for everything that was actually the fault of Those before him, eespecially Nixon, who "escallated" in Nam without actually demanding the money to do so.
Carter spoke to us like we were adults, and that isn't a smart thing to do with the American people. We are a young, foolish, childish country, and when Reagan came along and lied to everyone to make them "feel better", they jumped at it. For the life of me, I never fell for it, I still dont' understand how people can have so little understanding of history that they don't burn that moron in effigy, even though he's dead. The 10 day gush fest of his death was just sickening. He was the idiot who started this class war against us in earnest, and he should be cursed for what he did, turning American against American and family member against family member.
BTW, Kucinich was a FAR better candidate, but they screwed him because he actually gives a damn about the American people, not the big money scum that are still doing their best to screw us to death. His policies would have actually turned this country around, and while I voted for Obama, I am not a huge supporter (vote for McCain? What am I, a complete IDIOT?). I do think he will do far better than any of the idiot republicans would ever dream of being for the majority of us, but it won't be enough. We need all the help we can get. I hope Bernie Sanders runs for it next time. We would stand a chance as a country and as a people.
Rock on.
The treatment of Oliver Cromwell, after his death, may be an appropriate model for the treatment of Reagan.
Now it's time for Jon Stewart to put some of these politicians on the hot seat.
If you think things are bad, wait until the Obama administration again pushes the Social Security reform to privatize it. Our seniors dodged a bullet when the Bush privatization was sidelined.
Now you have pundits pushing the younger generation to unish the seniors by changing SS. We should be educating the young about the original concept and result before Nixon began stealing SS funds to be used to fund government operations and /or use the funds to pay for programs not originally envisioned.
Just wait!
Especially now that banks are pushing the issue that all regulations caused the current problem.
Deregulation has contributed to this financial mess we now have to deal with on an aggressive level. BUT, regulation in and of itself cannot change the fact that the human failings of greed, avarice, glutony and unmigated stupidity have caused the collapse to be as severe and widespread as it is now.
Unrestrained "capitalism" sparks the worse in so many people and that is why human behavior has to be regulated by secular law; religion no longer works to regulate human behavior (as if it ever really did). If for nothing else, than to protect the society as a whole from is best and worst members and their selfish actions in their pursuit of money.
We need to recind the repeal of the above mention laws; set in law, standards for financing/refinancing homes, budgetary standards, regulation credit card use (especially since we are now in loan shark rate territory) and strengthen the down payment or margin calls for securities investors. "Creative finance products and securities" such as derivities, ARMs, etc. need to be heavily regulated and the specific consequences of these products laid out in writing for the purchaser to see and sign for. New creations need to be approved and regulated by the SEC and not allowed on the market for purchase by unsuspecting customers.
It is going to take a lot to get us out of this mess created by the "best and brightest"; I only hope President Obama has the fortitude to not backdown from the impending fight over re-regulation of the finance industry, or we are doomed to repeat this disaster.
Deregulation has contributed to this financial mess we now have to deal with on an aggressive level. BUT, regulation in and of itself cannot change the fact that the human failings of greed, avarice, glutony and unmigated stupidity have caused the collapse to be as severe and widespread as it is now.
Unrestrained "capitalism" sparks the worse in so many people and that is why human behavior has to be regulated by secular law; religion no longer works to regulate human behavior (as if it ever really did). If for nothing else, than to protect the society as a whole from is best and worst members and their selfish actions in their pursuit of money.
We need to recind the repeal of the above mention laws; set in law, standards for financing/refinancing homes, budgetary standards, regulation credit card use (especially since we are now in loan shark rate territory) and strengthen the down payment or margin calls for securities investors. "Creative finance products and securities" such as derivities, ARMs, etc. need to be heavily regulated and the specific consequences of these products laid out in writing for the purchaser to see and sign for. New creations need to be approved and regulated by the SEC and not allowed on the market for purchase by unsuspecting customers.
It is going to take a lot to get us out of this mess created by the "best and brightest"; I only hope President Obama has the fortitude to not backdown from the impending fight over re-regulation of the finance industry, or we are doomed to repeat this disaster.
The actions of the financial deregulators and the industries they were supposed to be watching should not just be complained about but criminally prosecuted. They were essentially fake watchdogs whose real job is to allow the foxes into the chicken coop while maintaining the reassuring appearance of being on guard.
I've posted this phrase so many times I'm sick of it, but the large financial institutions are criminal conspiracies. Their senior management people are all Bernie Madoff types; he just got full of himself and careless and overplayed his hand. Now he's terribly sorry that he got caught.
The money the banks are missing reside in the private offshore accounts of senior management and large stockholders and those folks are all utterly unconcerned that the banks are going bankrupt and civilians will suffer. They believe that they're entitled to anything they can get their hands on and that their wealth proves that they are morally superior and us losers down here at the lower end of the pecking order are just too stupid to "do good by doing well."
Until humanity outgrows the current computerized system of "money" (a faith-based commodity if there ever was one) things will continue to go downhill for all but the rich and well connected.
Criminal prosecutions! Dream on.
Corruption is rampant across human society. The regulators and others on watch got their cut. Justice is a myth.
Money is debt. (watch and understand Money as Debt http://video.google.com/videoplay?docid=-9050474362583451279)
Money is not our main problem. Unsustainable population growth and reduced biodiversity is. Business promotes population growth and destruction of the commons to generate larger markets for increased profits.
Biodiversity is important since it balances the impacts on any one species by the rest.
We have been led to believe business leaders are intelligent people - not true. Sneaky, selfish, greedy, deceitful, obnoxious, crafty and a whole host of similar labels fit them well.
The world is in its current mess thanks to the business minds.
[ ____ B i r d s _ of a feather ____ ]
[ ______ C r a p _ together ______ ]
The love of money is the root of all evil.
Usury is evil incarnate.
d.k.shaw
Predatory Capitalism and hegemonic Communism are the products of "representative" government.
Direct democracy is real democracy.
The author correctly states :
"There was nothing inevitable, unavoidable or unforeseeable about the current crisis."
[ _____ d i t t o ___ f o r ___ 9 _ ! _ ! _____ ]
Ezeflyer is right, as usual. In the democracy we could have the pros and cons would be argued publicly on the merits of the case, without influence by wealth. The present system is not only corrupt, it is irrational and makes lousy decisions.
I seriously doubt the public at large would have come to the same conclusions. We would have been highly skeptical, indeed. The problems we now face - or try to avoid - came about because the wrong people made the decisions.
And poor decisions continue to issue from the little clique of insiders that somehow attained their positions of unwarranted power to screw things up to the detriment everybody else.
If nothing else, at least the current crises dramatically illustrate the need for methodological and structural reform. Maybe pretty soon we will start to take it seriously.
Millions of people in the US have a fairly good idea about what is going on (most of them progressives, some of them here at CD) and have some idea of what would constitute a positive change in direction. However, it seems that too few of them seem to have a handle on just how difficult it would be to mount the kind of pressure that would be necessary to achieve significant change. Those with money and power like having money and power and are not about to give it up without a monmumental struggle. They argue that the current system is utilitarian (the greatest good ...), but it is highly doubtful they actually believe that. They only make the argument to reduce resistance from the non-elites. What they believe is that the current system is good for them, and they could not care less about the rest of us.
What types of pressure would be sufficient to change the US political/economic system so as to avoid a completely dystopian future for the great majority of us? I would think there would be two different avenues to explore. One would involve convincing a strong majority of the population to join a movement for positive change. The only movement I can imagine that would have a reasonable chance to attract a strong majority would be centered on the concept of the common people, or little people, against the economic elites (have-nots vs. haves). All other issues may have to be thrown overboard in order to achieve such a majority. I believe most progressives are reluctant to make such compromises and would prefer to fantasize about the Green Party's prospects, as the elite corporatists, secure in the knowledge that the Greens probably have at most a 15 percent ceiling, chuckle to themselves at the thought.
The second avenue to explore would involve recruiting a dedicated and significant minority willing to pursue any means necessary to achieve real change. That would mean convincing a large number of rough, physically-capable, risk-taking individuals to join in the cause (not likely Green Party types). However, I doubt that most progressives would feel comfortable making common cause with such individuals or with accepting the risks to themselves or to the whole of society that would be inherent in the enterprise.
So progressives, as they are today, are not likely to achieve success in putting together a successful movement either through the first or second method. And the elite corporatists know this, so they will continue to screw the common people with abandon unless and until progressives and the progressive movement radically change to meet the challenge.
It sounds like you want to get some thugs together when you talk about a "minority willing to pursue any means necessary to achieve real change." That doesn't seem too effective.
If you are talking about some sort of revolutionary scenario, change happens based on a common understanding among people.
If you don't think progressives have the understanding to get to a change point, who do you think has that understanding?
-TIA
Did anyone else notice the DATES? Except for 2001, they were all during the Clinton presidency. Rubin and Summers drove the nail in the coffin - under Clinton.
Clinton is the reason I'm a Green. Now Obama has brought back the Clinton administration, and he's slinging our grandchildrens' money at the same banksters that created this fiasco. WHAT DID YOU EXPECT?
Oregoncharles
Yes, that's right, and people still think of Bill Clinton as some sort of liberal godsend.
Current Treasury Secretary Geithner, it's said, is a Robert Rubin protege. Geithner also previously worked for Kissinger and Associates.
So, why does Obama have Wall Street deregulators in cabinet positions overseeing this criminal mess?
-TIA
Weissman does a nice job of filling in the full historical narrative about how there were repeated warnings from credible voices raised against the right wing mantra that deregulation of financial services would enable the invisible hand of the marketplace to work its amazing magic, trickling wealth down in order to float everybody's boat.
The "cheerleading business media complex" that hyped the deregulation mania for the last decade is trying today to pretend that the great collapse in the last quarter of 2008 just could have not been forseen, despite the best efforts and good intentions of the best and brightest minds in corporate America. Such bullshit.
It reminds me of all those hawks and apologists who pretend nobody ever spoke out to question the wisdom of invading Iraq, or Condi Rice's infamous whopper that nobody could have possibly predicted that terrorists might some day high jack commercial airliners and crash them into tall buildings.
Of course there were warnings - warnings everywhere that were ignored or openly ridiculed by policy makers who thought they knew better.
So look where we are now. Those who knew better were obviously too smart by half.
Bill from Saginaw
you can add the CURRENTLY mostly SILENT LIBERTARIANS to these "business complexes" -- being hand in hand with them calling for
"privatize everything under the sun, deregulate deregulate deregulate for the sake of PERSONAL LIBERTY"......
and turning everything into a "COMMODITY" ....so MUCH for libertarianism and conservatism.
You agree with the "war on terror"? The "war on drugs"? That is regulation too.
Think about that.
Actually those are programs, created and designed to profit a small sector of our nation. They have ,as their function, the aim of increasing the money spent not to actually regulate but to exploit.
"Actually those are programs, created and designed to profit a small sector of our nation. They have ,as their function, the aim of increasing the money spent not to actually regulate but to exploit."
And how does the "war on drugs" exploit? By regulating.
I'm not arguing against regulation. I'm against the simplistic idea that Regulation == good, Deregulation == evil.
Is now a good time to mention that there's a contingent of 'obviously delusional' leftwing nutjobs saying that if we don't take action now on Global Warming, this planets biosphere is going to h*ll in a handbasket? That anyone on the right with a 'lick of sense' is deriding these weed-smoking crazies that obviously want socialism and communism and -isms of every variety? That obviously are just looking for an excuse to spend money the hard-workin' Republicans of this nation earned?
I didn't think so... our past is prologue...
From where I sit I can't see ANY "hard-working republicans." I see a bunch of con artists and Christian-evangelical whackjobs that will believe anything they say. Scratch a Republican and you'll find a thief underneath.
Open up your retirement statement and thank the GOP for allowing the complete looting of the USofA while they looked the other way and their back pockets were stuffed with cash.
"All (regulatory) agencies should adopt a bold, comprehensive and specific series of regulations to change the mortgage marketplace," the groups wrote, so that "predatory mortgage practices are either specifically prohibited, or are so costly to the mortgage lender that they are not economically feasible."
Yes, they should adopt this policy; however, most of the serpents on Captiol Hill are only concerned with the campaign contributions they get from these predators. Having said that, they procede to pass legislation which only slaps the predators on the hand but does nothing to stop predatory practices.
The financial industry hands out $$Billions in campaign contributions to make sure they only get a slap on the hand while they pillage and destroy the lives of American citizens.
Americans are simply too stupid to understand that they're being ripped off and that giving more money to the thieves isn't going to solve anything. When we commit to fair wages, fair contracts and fair taxes on excessive wealth we will start on the path to recovery.
There isn't going to be a recovery absent solid wages and secure jobs. Eliminating the insane health-insurance-profiteering system will have to be part of that. Pretending that white-washing the looting of the banks will work this time is a lost cause.
Look for things to get worse.
Acting heedlessly is the right wing nut's version of freedom.
Me right wing nut, me no like think, me want be free of thinking.
In short, Americans are completely corrupt; and nothing can stop our down fall.
No.
Americans are not completely corrupt. They happen to be like every other human being on this planet. For that matter, like every species living on this fucking rock. We do what we can given what we are, am, should, would, like and wish for...Some of us even plan a little, pay attention a lot of the time, grow mental callouses and scream in our sleep at this world of mockery.
So don't ever say a generic 'Americans' with such out right absolute disrespect. For you may not hold the knowledge nor the earned right, 0for that.
In one hundred years, who here will give a shit?
World homo sapien population will be almost non existent, the sixth extinction would have taken care of that.
As a fan of the McGloughlin Report I remember one of his panelists, Mort Zuckerman, responding to a question from John McGloughlin concerning the economic meltdown. When asked by John, whether the billionaires
( Zuckerman is one ) were being hurt by this crisis, Mort responded that he had anticipated this over a year earlier and had reworked his portfolio to invest in precious metals, Euros and other less fragile to downward trending entities. He noted that most of those in his position had done the same.
During the recent debate between John Stewart and Jim Cramer Stewart made the point that many on Wall Street went down with the ship too, and that only a few were not being harmed by this crisis, those in the know profited at the expense of the many. Certainly many are being hurt by this market, Bill Gates lost 18 billion of his wealth and Warren Buffet lost close to that as well. But being left with 40 billion gives Gates a bit of a cushion from deprivation one suspects.
My point being that until we address the inequities of our system of governance and the way we tolerate unscrupulous actions in our business community we will see a few doing well and many, many suffering greatly. Is this an equitable arrangement? Is this the best we can do? Can we not come to understand that we need a better way?