President Obama hit the nail on the head when he called the economic crisis "a great opportunity," yet so far it is one that America is wasting. Eighteen months ago, Lehman Brothers went bust and trillions of dollars of taxpayers' money was used to save the banking system. It seemed obvious then that a massive overhaul of the economy and the capitalist system that drove it was needed to get us out of the worst mess since the 1930s. We wrote The Road From Ruin because we had long believed that although capitalism was the best tool we had to build a prosperous world, it had serious flaws -- and we wanted to be part of the debate about how not just to rebuild the system but to build it back better. Today, we are shocked by how little real debate there has been, and even less real change.
True, the President pledged support for the Volcker Plan to separate everyday banking from risky investment banking -- although we doubt that alone would prevent another financial collapse, and anyway it is not likely to be passed by this bipartisan, infighting Congress. Obama called for innovation and that's what it will take to fix this broken system, so where are the big new ideas about building a financial sector that can support real job and wealth creation rather than the phantom growth, inflated stock prices and real estate bubbles of the last decade? Even after a systemic meltdown of the financial system, we still have the Fed, the Treasury, the SEC and the CFTC all supposedly watching over the system, but none of them really seeing the full picture or feeling fully responsible. We need regulation that is both more muscular and smarter than the feeble oversight of the past 25 years. Where is the political courage to take on the vested interests in Congress (i.e., campaign dollars) that preserve this fragmented mess?
This lack of leadership extends to global issues, since the out-of-date rules of international finance helped to pump air into the bubble that burst in September 2008. We got into this mess because America couldn't stop borrowing and China wouldn't stop lending and, as a result, we have all lost out. There were some fine words about sticking together and reforming the International Monetary Fund at the first meeting of the G20 in April of last year, but since then nothing. The global economy is being run by institutions created back in 1944 at the Bretton Woods conference when America was the world's lender. Now it is the biggest debtor. Does anyone really think that this system can carry on as it is?
As for Wall Street's bankers, they are too busy wallowing in their bonuses to realize that there is no going back to 2006 and business as usual -- that simplistic idea that setting financial markets free would make society better off will no longer wash. The little progress we have made in cleaning up the toxic assets on the balance sheets of the banks is still way ahead of where we have got to in dealing with the toxic ideas that got us into this mess. Most economists seem to think there are only two possibilities -- big government or unregulated free market. It's time to come up with new ways to look at how an economy can function.
Change will happen only if we, the people, demand it -- from our politicians, our economists, our financial institutions and our businesses. The future of our economy is simply too important a question to leave to Washington or Wall Street. Main Street America has to take the lead in getting our economy in shape for the next fifty years.
One of the big ideas in The Road from Ruin is the need to create "popular capitalism" if we are going to build back our economic system stronger than it was before - popular in the sense that all of us must be active in making it work. So we were delighted when The Huffington Post took the lead by championing local banking -- if we don't want our savings gambled in the gazillion-dollar global capital-market casino then it is up to us to "move our money" to the banks that will invest it back in our communities.
The next step is to demand a better deal from the pension funds and mutual funds that are supposedly working to ensure we have a decent income to retire on. But instead of investing for the long-term -- in the way that Warren Buffett does, with great success for those who trust him with their money -- too often they acted like short-term speculators, chasing every rising share price and giving bonuses to their staff for beating the market over a year, rather than for delivering their customers a good pension over 20 or 30 years. It was they who invested our money in all those failed banks, and did nothing to stop pay and bonuses getting out of control on the back of insanely risky strategies. We should be demanding that legislators rewrite the rules to give shareholders real power to stop executives doing whatever they like when it comes to their own salaries and their risky investments, and to vote them out when they do a lousy job.
This crisis is a wake up call to all of us that we need to do better in our economic decision making. We could all have been smarter about money. We're not just talking about the poor people who signed up to unaffordable mortgages. Cheered on by a too-often unquestioning media, we all enjoyed the bubble while it lasted and failed to ask some pretty basic questions
about why we were getting so much richer without really working any harder.
Our politicians and business leaders seem to think they can ignore this wake up call, so it is going to be up to the rest of us to demand real, far-reaching change, now -- and, where we can, through what we do with our own money, to make the change happen ourselves. In our next blog post we will launch our Road From Ruin action plan for every citizen to take back
control of our economic system. This economic catastrophe has proven that there are fundamental flaws in the way we do capitalism. Yet all of these flaws can be fixed. Let's get to work.
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