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If we had treated agriculture with the same disregard for facts as we have finance, we would now be dealing with a food shortage along with a financial meltdown. Image that for the last three decades, every day there were politicians, pundits and radio personalities not only singing the praises of deregulation, but also decrying the waste of soil conservation. After the stock market crash of 1929 and during the next few decades after the Great Depression, most people agreed that finance needed to be regulated in order to protect the economy. During the 1930’s we also saw a Dust Bowl caused by a draught and aggravated by the failure to implement crop rotation. Wheat was profitable, and that is what farmers planted year after year. But farmers learned their lesson after the Dust Bowl, and that lesson has never been forgotten. The same cannot be said for other lessons learned by that generation. We are now paying a heavy price for our collective forgetfulness, and I suspect that if we do nothing now, the price we pay in the future will be even greater.
The Glass-Steagall Act, or the Banking Act of 1933, separated commercial from investment banking to protect average citizens from the gambling excesses of Wall Street. The Gramm-Leach-Bliley Act, or the Financial Services Modernization Act of 1999, effectively repealed Glass-Steagall. After years of lobbying by financial institutions, one more roadblock in the way of the boom-bust cycle had been removed. The wall that was torn down should now be rebuilt.
Just as many loan officers during the housing boom had sold apprehensive home buyers with the phrase, “We learned our lesson in the ‘80’s; this isn’t a housing boom” so too had the public been sold deregulation after years of being told not to worry, regulations would hurt the economy and be counter-productive. When the head of the Commodity Futures Trading Commission (CFTC), Brooksley Born tried to prevent credit default swaps (CDS) and collateralized debt obligations (CDO) from harming the economy by proposing regulations in the late 1990’s, she was taken to task by members of Congress and heavy hitters like Greenspan and Summers. She was told, “You're going to cause the worst financial crisis since the end of World War II.” Of course not regulating is what caused the meltdown and even Greenspan has recanted his former stance on regulation.
But now that the market has started to rebound because of the trillions of dollars taxpayers have given the banks, there is an effort underway to block necessary regulation. And although there is a strong argument to be made that some banks needed to be bailed out in order to free up credit, the arguments for the lack of strings being attached are incredibly weak. Not only should we as taxpayers have a say in how the money is spent, but we should be guaranteed that no handouts will be necessary from this point on. No one in the future should ever hear the phrase, “Too big to fail.”
Would any individual take this from a family member with a gambling problem who almost crashes the family business? The gambler more or less crashes the business and demands money from other family members. Then no one in the family is allowed even the slightest input to ensure this the business will be protected from future excess? Well, Wall Street has a gambling problem and we deserve assurance this won’t happen yet again. Re-regulating is not only a moral obligation to reign in out-of-control gamblers - it is essential to protect the country’s economy.
The TARP and regulations refer to the bailout of Wall Street. The Stimulus refers to the bailout of Main Street. In what John Maynard Keynes referred to as the paradox of thrift, in macroeconomics, money needs to be spent in a bad economy in order to increase sales which increases production and so on. During the mid 1930’s the economy started to track upwards, then the stimulus to the economy was abruptly cut causing a downturn in 1937. Stimulating the economy was then reintroduced and the economy started to track back upwards until World War II put us in a war economy with massive government spending. There doesn’t seem to be a reason that the programs – the freeing of credit and stimulating the economy – should be mutually exclusive. And there are very strong arguments to be made on where to draw the lines. But what shouldn’t be up for debate is whether we are going to allow those who brought down the economy to do the same in the future. Learning our lesson twice should be enough. Once was enough for farmers.
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