Restructure, Don't Revive, the Broken System

Check out this sad story in the New York Times: apparently Morgan Stanley has been doing the right thing by taking fewer risks in their trading than their competitors at Goldman Sachs and Citibank. But in the perverse Wall Street system we have allowed to remain in place in this country, where the big financial traders make money for their firms by big gambles, the bankers who are actually being more responsible are being punished for it. Meanwhile there are record bonuses for the traders at Citibank and Goldman.

This is the problem I have with the resuscitation model rather than the restructuring model when it comes to Wall Street. I give the Obama team credit for wanting to regulate these big financial traders more, but they need to go further than that and change the fundamental financial trading system. What is being recreated in front of our very eyes is the exact same system with the exact same problems that led to our financial collapse in the first place. These big financial conglomerates will still have all the same incentives to take huge risks, and because they are so huge, the risk is to not just to their own company, but to our entire economy. And their financial clout will be compounded by the political power of being that big, which will inevitably lead to weaker regulations and captured regulatory agencies.

Oh, and by the way, that whole "we have no choice but to revive the banks, because that will start the credit flowing and create jobs" thing: it's not working either. Unemployment is going up, we're still losing hundreds of thousands of jobs every single month. I know that it takes a while for jobs to start being produced, but this jobs report is much worse than the forecasts predicted, and the Geithner/Summers team has consistently been too optimistic in their guesses.

We need a big, bold change of direction in this economy. The old models aren't working. Let's get some economists in the White House who actually made accurate predictions on the economy, and let's take on the big banks that brought us this mess. These Wall Street guys are back to their old tricks -- risky trades, huge bonuses -- and the rest of us are getting hosed.

It's time for a fundamental change in direction.

Comments

[lightningbolt]

We will never be able to restructure the financial system if we continue voting in the republicans and the democrats. Both parties are corrupt and they do not have the interest of their constituents in mind. The only way to save the economy is to vote in a third party in the next several elections. The democrats and republicans are criminals. Don't expect anything good for the country coming from either party.

[Aaror]

Wait, you mean propping up people who do not actually create wealth (aka goods and services people can consume) is not creating wealth? But but but, I thought giving 20% of our GDP to people who decide who gets what wealth was going to make everyone richer!
(Yes Virginia, the financial sector does represent 20% of our GDP, which means they get paid 20% of goods and services produced).

[hankaiwen]

Hi Mike - love your analysis of James Quilligan's great answers on Christiana Wyly's HuffPost blog:

http://www.huffingtonpost.com/christiana-wyly/the-juggling-contest----b_b_225347.html

These ideas seem to be the sort to break the logjam in global finances - why don't we see more innovation like this?

Thanks,
Kevin

[Chazet2]

Short term propping up of the system was the easiest route. But systemic change is necessary for this to be a truly healthy and productive society. The financial meltdown provided a once in a lifetime opportunity to make substantial change, and this administration refused to seize it.
More and more, this administration reveals that the one thing that Obama is determined not to do is change. Obama is squandering the opportunity, the faith that many have placed in him, and his credibility. Even today its announced that his administration are trying to tamp down the pressure being put on moderate democrats over halthcare.
I am convinced that either he does not care about these issues, or that he represents the status quo. For me that just makes when and what actions to counter him into question. I am now only looking at his actions, and not listening to his words, since they seldom match.

[LeLoup]

Why can't we do like the Canadians?

A Superintendant of Financial Institutions that is in charge of regulating everything financial.

The ice on the cake would be a 10-year budget, adjusted to inflation and independent from Congress .

[ClarcKing]

Right you are Mike! The present monetary financial economic model we are operating under is a killing machine: speculation, usury, bailouts to the financiers/bankers, perpetual war, forced trade, outsourcing industry and jobs, unemployment in the millions, shut down of physical production, cost cutting in vital population service centers, medical and social security, social services, education, etc. are demanded by our degenerate elite. This is warfare conducted against the U.S. We need a war-time response; a national job mobilization program that can inject 500,000 jobs per month into the economy through several public projects. As per Lyndon LaRouche: Put the Fed into bankruptcy, all banks that qualify will join the U.S. National Bank. Credits and currency will be issued into the population's physical economy. Jobs and purchasing power will be introduced into the economy. Stop the foreclosures, enact the Homeowners and Bank Protection Act. Expand Social Security and Medicaid. Start the construction of 100 nuclear generating and distribution systems, water harvesting and distribution systems, food growing, processing and distribution. Present water, food and energy production is under "market pressure" to shut down operations. Present levels of production in all vital sectors of the economy must be maintained and increased wherever possible. The present situation should be seen as a national security crisis. A Super Power does not submit to mechanization of the rigged market and imperil its' population.

[gd h]

good on you, ClarKing. This is Os*ama's dream. We are tearing each other apart, and everyone but us is loving it.

[sixchair]

Read Matt Taiibi's piece in Rolling Stone. It's on Huff Post home page. Unfortunately, nothing short of a new revolution will unseat the oligarchs from their thrones at Citi and Goldman and their stranglehold on us, the peasants, and their enablers, our "representatives". Our government is about as representative as Iran's.

[johnmorris]

I'm thinking that one of the next financial panics, maybe the next round of foreclosures or the carbon trading bubble bursting, will finally blow them down. They could survive if it held on for five or six years but I don't think that's possible. If it happens in this session of congress, there won't be another bailout. The Goldman people surrounding Obama have shot their wad. Next bankruptcy counts.

[PPatt]

The pitchforks are not such a bad thing. I am breaking mine out and can no longer afford paying Obama's campaign debt to Goldman Sachs.

This about sums it up:

http://cid-31e12062d0015784.skydrive.live.com/self.aspx/Best%20Images/PyramidCapitalism.gif

[Steven G. Brant - Huffpost Blogger]

When the Davos conference took place in late January, I wrote a relevant post called "Mountain Redesign" in which I said a "Reboot" of our economic system would just give us what we had had (and which had failed, due to its obsolete design). "Design Thinking" (also known as Systems Thinking) is key to getting out of this mess. Here's a link to my original post...

http://www.huffingtonpost.com/steven-g-brant/mountain-redesign-what-da_b_161532.html

Steve

[humanbeing-rick]

Take a lesson from Jesus Christ, Throw the money changers out of the temple !

The despicable Wall Street tycoons that have raided our economy need to be held accountable for what they did to us. These people are criminals and sinners, and have no remorse.

It is time to strip them of their riches and put their ill gotten fortunes back to work in our economy, to create businesses and jobs in America. Take their ill gotten assets and rebuild America's manufacturing industry.

Take the gambling and speculation out of investmenting, it should be all about long term investment, not short term profits.

Wall Street needs to be dismantled and completely replaced with an economy that works for the people of America, including the workers of America.

[JBS]

Much as I agree with you, I would be remiss if I did not point out that Jesus was crucified within the week of driving the money changers out of the temple.

[Rule Of Law]

As has been nearly every president who challenged the banks.

[hmargret]

totally correct post!!!!
Obama is a banker's president. He has showed no inclination to change even though he campaigned on change.

it's up to US, the people. don't bank at big banks, don't invest in the system. don't spend what you don't have. correct your own life. the big banks will fail as we pull back our money. remember, it was the boomers and post-boomers money that created these big entities. they don't care about us, so we need to pull all the money back. close the IRA's, end the mutuals,

[jmpurser]

This was the problem of approaching the problem "trickle down" style. The idea that if we just cushion the blow for the mighty the "little people" will prosper has been utterly rejected by that harsh old critic called "reality".

We're making the same mistake on Health Care right now.

[SiberianRat]

So true. So tragically true.

[William1950]

so right, so right... and we seemingly have no voice in this.. who is running things? they are all products of the very system they are now "reforming"... just words. there is no real regulation, there are only words to placate the people... there are no jobs because there are no real solutions until nafta is drastically overhauled if not repealed.. without jobs, the middle class will not begin spending uhhh because they have no money to spend and they see what happens when they borrow.. without a return of american manufacturing (see nafta) .. without that return of manufacturing there will be no resurgence of our economy.. oh the big banks and the cliched "rich" .. they will benefit from the bailout bucks, but trickle down does not create jobs... money in the pockets of the folks create jobs.. what we do spend is going to china mostly, why? because they are making stuff.

[therealredstateblues]

exactly

without our productive sector - our wealth generating, prosperity sharing and real innovation creating manufacturiung engine there will be no recovery

Economists of nearly all political stripe have been lining up to say we are not going to be able to borrow and spend our way out of this one, we must produce and export our way out

The admin is going about this who stimulous bass ackwards - propping up the very institutions that caused the problem in the first place nd completely ignoring if not actively dismantling our productive mfg sector

one need look no fiurther than the trade deficit - this is money and jobs leaving the country. Every one billion of trade deficit is 20,000 US jobs offshored. Trade surplus on the other hand brings money (and jobs) in to the country

so not only do we need to revamp or get out of our current trade model, we also need to do what nearly every other industiral country does - export rebates and tax credits, R&D subsidies and protections for vital industries and tariffs imposed on unfair traders - currency manipulators, intellectual property thieves, labor and evironmental exploiters,

the fact is that manufacturing even in its declined state still employs more than the finacial sector. Giving US based mfg a hand up could and would be accomplished at a much less cost to the tax payer than the Wall Street Bailout - getting more stimulus bang for the buck if you will

[saltysea]

thank you so much for this. now can you get Obama to listen?

[JBS]

Not unless you're a former high level Goldman-Sachs executive.

[Rule Of Law]

Laughing on the outside--crying on the inside....

[rocketman69]

Another bang up post. "Let's do something else" he says. "What?", you may ask. Something else. Wampum, horse tradin', wife swappin'; take you pick.

Hey look! I came up with more "solutions" than Mike.

[hmargret]

what else? take all the money out of the big banks. withdraw your IRS's. close the mutuals. take all the money and put it into small local banks. we created this problem by giving them our money.