It's the Deregulation, Stupid

[Adelante]

It's the Deregulation, Stupid

COMMENTARY: Democrats from Carter to Clinton helped roll back the government's regulatory power, but as the economic crisis deepens, "regulation" is no longer such a dirty word.

By James Ridgeway
March 28, 2008

Speaking at Cooper Union in New York City on Thursday, Barack Obama went where few Democrats have dared to go in the past quarter-century: He made a case for more regulation. As part of a speech on his economic platform, Obama depicted the current economic crisis as a consequences of deregulation in the financial sector. “Our free market was never meant to be a free license to take whatever you can get, however you can get it,” he said. “Unfortunately, instead of establishing a 21st century regulatory framework, we simply dismantled the old one—aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight.”

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Passage of the Financial Services Modernization Act of 1999 was celebrated in a Wall Street Journal editorial as an end to “unfair” restrictions imposed on banks during the Great Depression, under the headline “Finally, 1929 Begins to Fade.” But Russell Mokhiber and Robert Weissman, writing in Mother Jones, warned that the legislation, which amounted to the “finance industry’s deregulatory wish list,” would “pave the way for a new round of record-shattering financial industry mergers, dangerously concentrating political and economic power.” Mokhiber and Weissman also predicted that such mergers would eventually “create too-big-to-fail institutions that are someday likely to drain the public treasury as taxpayers bail out imperiled financial giants to protect the stability of the nation’s banking system.”

Enter Bear Stearns. In addition, the merging of commercial and investment banking helped enable high-risk mortgage lending to make its way into the mutual funds and 401Ks of millions of Americans in the form of mortgage-backed securities. “Diversifying bad debt just spreads the poison,” as Frank said in his Boston speech. It also makes a falling housing market reverberate throughout the economy far more than it did even during the S&L collapse. Enter the subprime crisis. And welcome back, 1929.

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With his speech in New York, Obama is clearly trying to show himself to be a man who isn’t afraid to bite the hand that’s feeding him. He is also putting space, on this issue, between himself and Hillary Clinton, in part by reminding voters of the outcomes of Bill Clinton’s policies. He denounced both “Republican and Democratic administrations” for regulatory failures leading to the current crisis, and, as the New York Times reported, “handouts supporting the speech” noted that “the banking and insurance industries spent more than $300 million on a successful campaign to repeal the 1933 Glass-Steagall Act in 1999.” Any effort Hillary Clinton might make to separate herself from her husband’s positions will be undermined by the fact that Robert Rubin, promoter of bank deregulation and still a top official at Citigroup, is an advisor to her campaign. On Monday in Philadelphia, in her own speech on economic issues, Hillary Clinton urged President Bush to immediately form an “Emergency Working Group on Foreclosures,” which “could be headed by eminent leaders like Alan Greenspan, Paul Volcker, and Bob Rubin.”

For the moment, at least, Obama has staked out the higher ground on this issue. In the end, though, says Sheila Krumholz, executive director of the Center for Responsive Politics, “No matter who becomes our next president, Wall Street will have an indebted friend in the White House.” Once the campaign rhetoric fades, the only thing that might bring change on Wall Street is a revolt on Main Street, from Americans who finally cast blame for their lost homes and depleted retirement accounts on its rightful source.

http://www.motherjones.com/commentary/columns/2008/03/deregulation-economic-crisis.html


For more information, see Frontline:

The Wall Street Fix
http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/