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| Jun 22, 2009 6:08 am |
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Causes of the World Financial Meltdown? |
John Stephen Veitch
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These are some quotes from
"Obama's False Financial Reform" by William Greider
Published today in Common Dreams.
http://www.commondreams.org/view/2009/06/21-2
Barack Obama .... tried to make it sound as though everyone was implicated in the financial breakdown and therefore no one was really to blame. "A culture of irresponsibility took root from Wall Street to Washington to Main Street," Obama explained. "And a regulatory system basically crafted in the wake of a 20th century economic crisis--the Great Depression--was overwhelmed by the speed, scope and sophistication of a 21st century global economy."
That is not what happened, to put it charitably.
The regulatory system was ... systematically gutted and dismantled by the government in Washington at the behest of the banking interests. If Obama wants details, he can consult his economic advisors--Summers-Geithner--who participated directly as accomplices in unwinding the prudential rules and regulations. Cheers were led by the Federal Reserve with heavy lifting by both political parties.
If Obama were to tell the truth now about what went wrong in the financial system, he would face a far larger political problem trying to clean up the mess.
Congress doesn't much want to face the music either. In the long run, [this neglect] will haunt the country because it fails to confront the true nature of the disorders.
Asking the cloistered Federal Reserve to resolve all the explosive questions about the over-reaching power of financial institutions is like throwing the problem into a black box and closing the lid, so people will be unable to see what happens next. ... Give the mess to the Wizard of Oz, the guy behind the curtain. He can do miracles with money, but don't watch too closely. This constitutes the high politics of evasion.
Still, I am thrilled to observe a nascent rebellion gathering strength in Congress. ... Even House Speaker Nancy Pelosi expressed concern (and gave a nice plug for my 1987 book about the Fed). "The fact is that the American people want to know more of the Secrets of the Temple," she said. If they do learn more, I guarantee shock and awe will grow into outrage.
Outrage is good. ... The power of financial titans and their friends at the Fed depends crucially on public ignorance. Most elected representatives and senators are just as clueless as their constituents. This is not entirely their fault. The system is designed to encourage deference to murky power.
Several times in the last two decades the Fed and other central banks enacted new and supposedly more effective capital requirements to curb the excesses. The big dogs of banking broke free of the leash again and again while vigilant watchdogs at the Fed and elsewhere looked the other way. Why should we expect different results next time?
One reason why old restraints failed is the so-called "modernization" that shifted the credit functions outside regulated banks and into a variety of unregulated money pots--the so-called shadow banking system of hedge funds and private-equity firms. These all interact intimately with traditional banks and give the banks profitable ways to evade the old rules or conceal the actual condition of their balance sheets from both regulators and innocent investors. This was not an accident of nature. It was the goal of financial deregulation enacted by Bill Clinton, arm-in-arm with the Republican Congress.
Likewise, banks were allowed to play these games by legislative creation of "off-balance sheet entities" where they can park their holdings--debts or assets--beyond the view of casual observers. This is essentially the same accounting trick that empowered Enron and other corporations to hide their true condition (then collapse).
The biggest bankers played roughly the same game. In fact, it was the bankers who taught Enron and others these tricks. What public purpose is served by these devices except to conceal reality from public investors?
What is the public purpose of letting corporations, banks and wealthy individuals park their wealth in the Grand Cayman Islands? Everyone in Wall Street knows the answer. It allows them to evade "legally" US regulations and tax law.
Summers-Geithner suggest that the Fed will watch [financial institutions] (we are assured) to prevent "systemic risk" that could lead to national breakdown. But that is what the Federal Reserve was supposed be doing already as the "lender of last resort" charged with defending the "safety and soundness" the banking system.
The Securities and Exchange Commission, likewise, is supposed to monitor hedge funds and private-equity firms that thrive on secrecy. Since the SEC failed miserably to police regular corporations, it does not sound reassuring.
The method of bundling home mortgages and turning them into saleable bonds was supposed to reduce risk but did the opposite. The mortgage lenders were able to execute dubious, even fraudulent loans, collect their profits up front and then sell the package to unwitting investors around the world.
You cannot design organic reforms until you understand what really led to the breakdown. Since the government has avoided that kind of serious examination, the limp response is to turn these explosive issues over to expert regulators--the same experts who failed to see the trouble coming.
Right now, I think the political imperative is to slow down the rush to weak solutions. ... Congress would do well to drag its feet and insist instead on deeper investigations.
Give subpoena power to Elizabeth Warren the Congressional Oversight Board she chairs. Hire some of those investigative reporters who have no political investment in digging deeper into the mulch. What exactly went wrong? Who has bloody hands? Where are the fundamental reforms?
Copyright © 2009 The Nation
William Greider is national affairs correspondent for The Nation. He is author of "Secrets of the Temple: How the Federal Reserve Runs the Country" and, most recently, "Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country."
John Stephen Veitch
Open Future Limited - http://www.openfuture.biz/
Innovation Network - http://veech-network.ryze.com/
Building an Open Future - http://openfuture-network.ryze.com/Private Reply to John Stephen Veitch (new win) |
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