Wrecking, Wrecking, Wrecked

The great fear that hung over the business community in the 1970s was death by regulation, and the great goal of the conservative movement, as it rose to triumph in the 1980s, was to remove that threat--to keep OSHA, the EPA, and the FTC from choking off entrepreneurship with their infernal meddling in the marketplace.

Defunding those agencies was one way to stop the killer bureaucrats; another was to stuff them full of business-friendly personnel who would go easy on regulated. The signature conservative regulatory idea became "voluntary enforcement", because everyone now knew that efficient markets regulated themselves. Bad practices or tainted products drove away consumers; therefore firms had an incentive to behave, an incentive far more powerful than some top-down scheme in which big brother told them what to do.

Whether people ever truly believed this nonsense or not, its application over the years makes up the basic story of conservative governance as I tell it in my book, The Wrecking Crew. This is the philosophy by which conservatives gutted the EPA and the Labor Department, turned over the Interior Department and the FDA to the industries they were supposed to regulate, let the CEO of Enron advise the vice president on energy policy, and generally came to regard business, not the public, as government's "customer" (a word that crops up with disturbing frequency in conservative regulatory history).

But it is only now, as we watch the financial system crumble around us, that we can really see the devastating consequences of this folly. It turns out the Securities and Exchange Commission (SEC), which was responsible for regulating investment banks, did a significant part of its job through a voluntary program which firms could participate in or not as they saw fit. As the New York Times told the story on Saturday, this system had--of course--been pushed for by the investment banks themselves, who wanted it in order to avoid the stricter rules from European governments that they would otherwise have had to obey.

And now, as a consequence, the SEC has almost no industry left to regulate. Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs, Morgan Stanley: All of them are gone or restructured. At business's urging, business was left up to its own devices; its own devices turned out to be precisely the things that our grandparents set up regulatory agencies to guard against: euphoria that leads to panic; perverse incentives that lead to fraud; boom that leads to bust.

As you watch the world crumble, try taking your Armageddon with this sprinkling of irony: Over the last three decades, business has got virtually everything it wanted, and its doomsday scenario from the 1970s has come true because of it. The regulators have indeed killed the regulated--not by intrusive meddling but by doing nothing, by taking a nap while the financial sector puffed up the bubble and blew itself to pieces.

Comments

[kalapa]

An incisive article from a US based Guardian columnist.

"The notion that there might be alternatives to rapacious capitalism have been all but banished from the public square. "

This is the nugget Americans and the rest of the West who have followed its lead needs to grapple with. The emperor's lack of clothes has to be shouted from the rooftops, so that other alternative ideas can be taken seriously.

http://www.guardian.co.uk/commentisfree/2008/sep/29/uselections2008.useconomy1

[krocklin]

I am afraid this notion will still continue to be banished from the dialogue. The Republicans will just wait for the right moment and paper over this debacle with lies and twisted logic - what Gore calls the "Assault on Reason". Free Markets are wisest, anything government can do private enterprise can do better. government Is the problem blah blah blah.

I listened to Rush Limbaugh all this morning blaming the crisis on........Pelosi and Obama!!!!!!

If people can still swallow this stuff after 8 years of humanitarian and economic catastrophe, it will continue to plague us in the future because American stupidity is intractable..

[dshwa]

They've already started by blaming bad loans to the poor, when those aren't the mortgages going south.

[Whale]

To understand what is involved here, read about Moral Hazard

http://en.wikipedia.org/wiki/Moral_hazard

[CFAmick]

Smart businesses delisted from US exchanges after Sarbanes-Oxley; they forsaw the possibility of a de-regulated system collapse.

The only bill that Congress should debate should require financial firms to fund their own efforts into unraveling the massive paper trail of overleveraged CDOs.

[justsomeguywhocameby]

Hear! Hear! And credit default swaps.

[Joseph A. Palermo - Huffpost Blogger]

Excellent post -- and I really enjoyed your book -- I saw a terrible review of it in the NY Times, calling it a left-wing screed -- but everything that you cover in your book has come true in spades -- with leaders like Reed, Abramoff, DeLay, and Tauzin -- what else could have happened?

[BaltoAman]

Hey, let's blame the "free market." Like any of us know what that really is. Here's what it isn't...

The Fed creating trillions of new dollars during Bubba's term, which spawned the 1990's stock bubble (and it's aftermath), is NOT free market.

The Fed dropping interest rates to 1% during Georgie's term, which then caused the debt/housing bubble (and it's aftermath), is NOT free market.

Finally, rescuing mammoth private institutions when the bill finally comes due (at the tax-payers expense) is NOT free market.

So, before we go completely pinko-commi, let's start looking at our lovely central bank and the fractional banking system as a whole. I think Greenspan owes us an explanation.

[kalapa]

SO what is your definition of free market?

[WilburM]

no kickbacks, no lobbying payoffs, clear ethics rules/laws with extreme penalties, no ability of the government to manipulate markets or interest rates or monetary policy for short-term political gain, no tariffs, except to countries who tariff our products, no favored nation status to countries whose people are not free and who are, in essence, slave labor.

there, that's a start.

[WilburM]

amen. I'm so tired of everyone jumping on the anti-capitalism bandwagon. it's been a talking point for the Left leadership for months now and this market and financial meltdown couldn't have less to do with capitalism if the Chinese rigged it.

What we have in America is crony capitalism, mixed with the occasional government socialist handout/corporate welfare. we have, in essence, the world's largest government/business partnership where the fat cats work together tirelessly to make sure the rich stay rich and to steal as much as humanly possible from the rest of us.

[RedneckDem]

No one here is saying they are anti-capitalism, we are for capitalism that protects itself from it's own excesses. There is a balance and some regulation is required. We are also for FAIR TRADE in lieu of Free Trade. To say you are for totally free market capitalism is treasonous and un-American because you've just put your own greed and selfishness before the good of your fellow countrymen.

[blwtym]

RIGHT ON!!! And now the Republican house has effectively voted down the bill and their excuse is that Nancy hurt their feelings by saying mean things about how when they were in control they failed to control. They just cant stomach working with the "left"to solve the problem for the AMERICAN people for whom they were elected to serve. They would rather take their hurt feelings and nurse their angst and blame Nancy and we can all go to hell and they can be the NEW REPUBLICAN ICONS they can all be indignantly rightious MAVERICKS. God forbid this is our new reality. Honorably heroic mavericks who throw common sense and bipartisnship to the wind while searching for the most eyeopening brainsplitting headline-grabbing stunts and gimmicky gamesmanship all for the purpose of promoting what ever is left of failed idiology and a party that carries the full measure of blame for an America that is twisting in the wind, two failing bankrupting wars, economic crisis on the brink and don't for get the middleclass that has had to bear the brundt of the foreclosure crisis, healthcare crisis the list goes on. We dont need more cowboys, we dont need mavericks we need leadership and bipartisanship that puts People first with thoughtful commonsense.

[RobynLinder]

I think the plan is to let everything blow up for a few weeks. People will loose the better part of their 401K values and then will they see how bad the situation really is and that the bailout is not just for rich people, it is for them too. Once they realize the gravity of the situation PERSONALLY, they'll know that something needs to be done. But, not until.

The Bailout should = MONEY and REGULATION and EQUITY and PROSECUTION, as required.

But until the people really panic, you'll see the Republicans wait and then, miracle of miracles - Johnny the "maverick" Mccain will come and talk the "no bailout crowd" into voting for the bailout plan....and then, he will take credit for saving the economy.

Mr. Deregulation and the Deregulators will appear to have saved the day, in perfect harmony. Pure theater.

.

[HyperInfluential]

How dare you so arrogantly assume the American people are too stupid to understand the consequences of the choice we have made? You sound just like our public servants Nancy Pelosi and Harry Reid chastising us, their collective Sovereign, for failing to rally behind the idea they came up with in secret with the very same people who caused this mess.

We're not stupid, we just know a con when we see it, at least if it's sufficiently baldfaced and shockingly greedy. The American people realize what it means for Wall Street to collapse and what it means for the dollar to lose value, but we also realize that this bailout plan was a bad bill that deserved to fail. It was ridiculous! More of the same trickle-down economics that got us into this mess.

Not one economist was invited to testify to Congress about the bill, so how dare anyone make these bold pronouncements of the doom that will follow from the failure of this absurd bill? It didn't do anything to address the source of the problem: the recession that has been a REALITY for the vast majority of Americans stuck with stagnant wages and rising prices for everything.

[Pepper14]

This is the fault of both parties and to try and put all the blame on one party shows the ignorance of voters. I also blame voters in both parties for voting for the same people all the time and seem scared to death to have any turnover in the house or senate. Voters need to clean out the dems as much as the did with the republicans. It's BS that dems are so much better on everything.

[DrPaulProteus]

Voters need to clean out the ideology that leads to this kind of mess, not a particular party. The "outsource, deregulate & privatize" mindset definitely has adherents in both parties -- you can start with the Democrat-In-Name-Only Bill Clinton on the Democratic side -- but it finds its warmest home in the bosom of the Republican Party. Pick up "The Wrecking Crew" and prepare to be amazed.

[LilyK]

Based on his recent television interviews, I don't know that I'd call Bill Clinton -- who seems to be John McCain and Sarah Palin's biggest cheerleader -- a "Democrat-In-Name-Only". Either he's got one foot in the GOP or he and Lieberman are about to form their own Party of Old Pariahs (POOP).

BTW, I just read a post that renamed the GOP -- "Grumpy Old People."

[newshawk14]

It is sad to see, that many people don't realize that laissez faire capitalism failed causing the
Great Depression. It has been proven to be inherently unstable, without some form of government
regulation. Ever since Ronald Reagan, we've been removing, or weakening the regulations, or
not enforcing them. Guess what? It has failed again. Reagan's mantra that government is not
the solution, but the problem, is utter nonsense.

[pmag88]

Even if you gave them the benefit of the doubt, their globalist/neocon/neoliberal utopia would have taken another hundred years and lot's of careful nurturing to come to fruition. Trying to cram all that into a few decades via the brute force tactics that were employed is sheer madness.

[bushlies]

This is IT! I have had it with the greed in this damned country. It is time to take what (and it's practically nothing) I have and move elsewhere.

[Golfer59]

See ya later. I hope you've been wtaching Bill Mahers shows. He has a list of go places to move.

[DrPaulProteus]

Keep hammering, Mr. Frank. I'm glad you're out there pounding away at the myths and lies these guys throw at us.

[pmag88]

Couldn't agree more.

I've always felt that if capitalism were going to die, it would die by the hand of the globalist, neocon/neoliberal conservative republican zealots, and not by those of us who they choose to label as protectionist socialists.

[Rule Of Law]

Thomas, things proceed according to plan. Of course there has been a restructuring on Wall Street. A consolidation. A new monopoly legally encouraged and abetted by the White House. There is an industry left to regulate--it is just much condensed and even more powerful and resistant to regulation.

The money continues to flow upward, away from the people and into the accounts of the Oligarchy. Fascism is not far behind. Nothing was wrecked, except the Constitution and the middle class.

[deliriousgod]

its always helpful when everything you've ever believed turns into smoke to back up and challenge all the assumptions your faulty line of reasoning is premised on, such as: Free-market economy - why is this 19th-century ideal the holy relic? What else about the 19th-century is sacrosanct? Because everything else is Communist and the Russians couldn't make that work? Seriously; the Russians can't make anything work! They win wars by burning their own houses down and freezing invading armies out and subjecting themselves to horrible privation that no one else can withstand. Hardly proof that Socialism can't work.

[wrabbitt]

This time the taxpayer is getting screwed with out the help of petroleum products(vaseline). The reason congress is worried might be that the fund that all government officials have their money in might be losing money like our 401ks have. And, wouldn't it be a glorious thing to have the greedy bastards experience, what we are? They don't have social security, so just maybe what goes around comes around! Have they also lost all of the social security money playing the stock market? Hey, Wall Street you like reaping the profits now reap the real payoff, NO WAY TO THE BAIL OUT!