By Dave Wheelock
This week the battle over possible reform of the US financial system reaches a milestone of sorts with consideration in the U.S. House of Representatives of the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173). As with the so-called health care reform “debate” the prospects for changes that will make a lasting difference are far from slam dunk status, especially considering what may happen to the bill in the Senate.
While damage to the world economy, estimated in the trillions, will stunt the futures of the next generation at least, business continues essentially as usual in the economic sector known as FIRE (finance, insurance, and real estate). Wall Street “innovators,” their actions and even identities shielded from public or official scrutiny by “proprietary knowledge,” continue to collect staggering rewards not for creating anything of lasting value, but for shifting the mountain of debt that has increasingly come to define our economy. Without a radical change in course, further calamity beckons.
The average citizen could be forgiven for thinking the meltdown of Wall Street's financial monoliths was a sudden and unexpected phenomenon. Although references to the "Crash of September 2008" are common in mainstream media stories, such simplistic framing only hampers our ability to recognize and correct the false recovery Wall Street has laid out for us.
In the wake of the 1929 collapse of Wall Street, Congress sought to eliminate conflict of interest and fraud by erecting barriers between the activities of the insurance and real estate industries, commercial banks, and investment banks. Almost immediately large corporate interests, including the Wall Street financiers soon nicknamed “banksters” by the working class, went to work to overturn these measures.
Their success in eliminating legal firewalls eventually gave birth to an industry characterized by a nearly impenetrable web of cross-ownership, holding companies, interlocking boards of directors, and above all, the marketing of debt. By 2000, the FIRE sector, accounting for 20 percent of the U.S. gross domestic product, had surpassed manufacturing, whose shrinkage to 14.5 percent is still playing out in the lives of the millions whose jobs have been outsourced in part by the activities of, you guessed it, the FIRE sector. It is more than mere coincidence that as the level of household, corporate, and national debt grew, the power of FIRE grew right along with it.
The struggle to return to a sane economy is an asymmetrical war. According to the Center for Responsive Politics, operatives of the FIRE sector have given 3.8 billion dollars since 1998 for lobbyists to “educate” our members of Congress, even surpassing expenditures by the healthcare industry. In the two years of the 2008 election cycle, FIRE donated over $475 million to election campaigns. Standing outside the capitol one day last summer, Illinois senator Dick Durbin ruefully admitted, “The banks frankly own this place.”
Which brings us to the showdown over the Wall Street Reform and Consumer Protection Act. While the message the banksters want us to get is “this is too complicated for normal folks,” the vital principles of this legislation are pretty simple: if it operates in the dark, depends on huge levels of debt for its existence, is outside regulations set by society, and/or is so big everyone else depends on its welfare, we probably ought to be rid of it.
First, the intense opposition by FIRE against the proposed Consumer Financial Protection Agency is a huge hint. An entity tasked protect citizens by regulating ALL kinds of financial products and services is a no-brainer.
A transparent and tightly regulated market is in order for the so-called shadow banking industry including derivatives, credit default swaps, hedge funds, and private equity funds. Some of these illusory schemes have caused so much trouble they probably should be banned altogether.
The actions of the Federal Reserve, which should have acted before the housing bubble burst, must be hereafter transparent to the public. The Fed is in need of a regime of good old-fashioned audits to determine whether some of their power should be rescinded.
“Too big to fail” mega-companies should be broken up, especially if they’re not doing their job by loaning money to regular folks and small businesses.
The perversions known as “off-balance sheet entities” and tax-dodging “offshore accounts” need to end now, if not sooner.
And why not a tiny tax on every market transaction, to encourage useful long-term investing while collecting billions for an economy in deep trouble?
Understanding the roots of our economy’s problems is vital to charting a course of correction. Just as when popular sentiment forced the hands of FDR and Congress in the aftermath of the Great Depression of the 1930s, the choices that must now become policy will profoundly affect everyone, not just the denizens of Wall Street. This is our business, not the banksters’.
Dave Wheelock, a member of the Oneida Nation, holds a history degree from the University of New Mexico. Contact him at davewheelock@yahoo.com. Mr. Wheelock’s views do not necessarily reflect those of the Mountain Mail.
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