On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn out dogmas, that for far too long have strangled our politics. Barack Obama (Inaugural Speech)
The honeymoon that supposedly greets all nascent Presidents was sorely lacking in the financial markets as the stock market broke an Inauguration Day record; it fell 332 points. Banks were breaking, home values were plunging and unemployment was rocketing upwards. The new President asked for both sides of the aisle to join forces and put ideology behind them to embrace a budget-busting infusion of new government cash into the economy. Too many politicos reacted by shaking their heads, focusing on rigid tax-break-incentive thinking or laissez faire market self-adjustment – two policies that have produced massive failure in the recent past. The President inherits a “house divided,” pretty much along party lines. Where is the needed unity of purpose? The house coming together to serve the people?
But what do you do when your political fundamentals, the very reasons you got elected, are built on the premise that government regulation or direct government intervention in the markets is just one more form of “socialism”? Funny how our elections seem to rest on finding some nasty label we can attach to a complex set of policy issues so as to render the entire package a negative value in the eyes of political supporters. My major in college was “sociology,” and I spent a lot of time studying political and social structures.
All modern developed societies are complex mixtures of socialism, capitalism, often even a touch of utopianism. In my mind’s eye, now a lawyer with decades of experience, these labels are intellectual short cuts our nation can no longer afford to use. Putting a label on a level of government operations is hardly the basis for determining if such policies should be pursued or abandoned. Further, different times require different levels of government “interference.” Japan left their down-markets alone in the 1990s and managed to stretch a recession into a full decade of stagnation. To many, “socialism” means no bailouts and keeping the government out of the markets. But, look at the damage caused by the champions of deregulation.
In 1999, when the Democrats “deregulated” commercial banks with the partial repeal of the Glass- Steagall Act, they clearly allowed banks and stock brokers/investment bankers, which had been forced to stay separate, to merge banker’s access to cheap Federal Reserve loans (the “discount rate”) with the traders’ instincts to pursue varying degrees of risk in their investment strategies. We are reaping the benefits of these financial behemoths, supported by untrustworthy credit-rating companies who are paid by the issuers of debt, who took this deregulated industry to the highest highs, and this nation to its lowest low.
In the early part of this decade, doctrinaire economist, Republican then-Senator Phil Gramm, joined by many Democratic colleagues, fought hard to keep derivatives, hedge funds and private equity free from meaningful federal oversight. The April 28, 2004 decision by SEC to let the nation’s five biggest investment banks borrow as much as they wanted for whatever purpose without oversight let to the biggest artificial (and most temporary) creation of wealth in our history. Traders and investment bankers made riches in the form of bonuses that no one had ever seen in our history. Of course, it was a self-fulfilling illusion.
We watched as political appointees, lodged into key spots in the various federal regulatory agencies, placed doctrinaire “don’t allow regulation” requirements to block demoralized civil servants from implementing their statutory authority. It took, for example, a 2007 Supreme Court decision to force the Environmental Protection Agency into implementing its environmental mandate under the Clean Air Act.
By admission of SEC chairman, Christopher Cox, who was not in his office for much of the malfeasance, his lawyers were asleep at the switch for most of this administration’s tenure, allowing schemes like Bernie Madoff’s massive Ponzi fraud to pass with virtually no scrutiny. The December 25 New York Times looked at the numbers at the Securities and Exchange Commission: “There were 133 prosecutions for securities fraud in the first 11 months of this fiscal year. That is down from 437 cases in 2000 and from a high of 513 cases in 2002, when Wall Street scandals from Enron to WorldCom led to a crackdown on corporate crime, the data showed. . . At the S.E.C., agency investigations that led to Justice Department prosecutions for securities fraud dropped from 69 in 2000 to just 9 in 2007, a decline of 87 percent, the data showed.”
What’s missing in anything “doctrinaire”? Balance and common sense. If you make all your decisions based upon a rule that cannot change, then when the world changes, you simply are stuck with past experiences and past assumptions. Pragmatic rule, wrapped in Constitutional protections, applied with intelligence, common sense and balance, is what each and every administration, Republican or Democrat, must apply. Will Obama’s proposed American Recovery and Reinvestment Plan (“Bailout 2”) work? Who knows, but putting a “socialism” label on the legislation to dispose of further analysis is profoundly naïve, over-simplistic and not particularly useful.
Whatever the path, we need aggressive action pretty soon or the economy will fall another giant notch. They’re bickering over earmarks and ideology in Washington right now. The January 8 Los Angeles Times: “Democrats are emphasizing government spending, particularly on roads, bridges and other infrastructure, to boost the economy and create jobs. Republicans say that amount of spending is wasteful -- particularly after the Congressional Budget Office on Wednesday projected a $1.2-trillion federal budget deficit for the current fiscal year.”
But remember, you don’t drive a car by placing your foot on the accelerator pedal and leaving it in one place. And you don’t govern a complex society by holding your foot on the “simple rule” pedal either. How much of this managed depression could have been avoided if balance and common sense had replaced doctrinaire political thought? All of it?
I’m Peter Dekom, and I approve this message.
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