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

[Pdubya]

I understand that you're from the camp that we've suffered from run-amok free market capitalism.

You're dead wrong. Because, we haven't had free market capitalism. We've had managed markets, corporatism, a soft form of fascism.

Regulation vs. Deregulation is an irrelevent arguement within a fiat monetary system. It is akin to arguing over whether the gaping chest wound was caused by the mortar or its shrapnel.

"Allow me to issue and control a nation's money and I care not who writes its laws!" Amshell Rothschild.

This is THE example of Keynesian economics expiring its lifespan.

So what we are being presented are only two options, but no matter how many options are on the table, there are now only two results:

1. "do nothing" (a politically bigoted term designed to divide us) - will result in a U.S. deep recession, perhaps a global recession. It will be painful, but in historical terms, relatively short. This is the free market telling us that we've abused it.

2. "bailout" (read buy-in) - Dumping $700 Billion (Bloomberg claims its $1 Trillion) of fiat currency into our system will destroy our dollar. This will result in hyperinflation and a decade or longer Greater Depression. This is what is being sold to us!

Look to the 200 top economists. Look to Hayek and Friedman economics and our Constitution. The answers lie within.

Hello Amero.

[ManhattanMC]

"P" ?
Prescott Bush '
is that you ?
why aren't you in Iraq fighting for your uncle's noble cause ?

'free market' ideology is dead-

get used to it

[Pdubya]

free market ideology we haven't had. managed markets forced upon us is in its death throws.

[Gdebs]

Hayek and Friedman are the authors who led us into this mess.

[Pdubya]

You are uninformed and poorly researched. These very people are who predicted this mess.

It is Keynesian economics that was created via the secret creation of the Federal Reserve that lead us to this.

"Allow me to issue and control a nation's money and I care not who writes its laws!" Amshell Rothschild

[BoshSpong]

Your ideas fail to take into account a number of glaring items. The very idea of a free unregulated market is "dog eat dog" at its finest. The market is a creation of man - IT IS NOT DIVINE. You and your group of believers should in fact be honest and form a religious institution where you get to worship your "market deity". This way all of us would of course understand that you are living by faith.
Proposing that the market should be unregulated is similar to proposing that road traffic (another man made system) should be unregulated. Only a pinheaded ditto head would blindly follow that folly. It is amazing to me, how seemingly intelligent well informed folks manage to hide the sun with their fingertips and proclaim that it is dark outside.

[Pdubya]

I am not proposing that the market should be unregulated. It should. Enron was regulated and their stock failed and some of them went to jail. This should have been allowed for Lehman, AIG etc.

You do not understand the difference between market regulation (Fraud laws) and managed regulation via. lobby. It all ties to the monetary policy and the economic philosophy installed.

peace

[OldKnute]

Thomas,

It is not just regulations for regulation sake. That would be just as bad. It’s clear sets of rules, that ALL are asked to live by. Lobbyists and special interests had eroded original rules for Lending and Banking so that almost ALL were worried about compliance. Rules not just from the 1930s, they go back eons.

It was also ratings.

AAA, Paper, First Trust Deed Loans, used to have MEANIN, probably the safest investment around. When Institutions began to bundle these together and negotiate them off to Equity Firms, they could hide,,,, less than quality loans,,, in the mix. The Fix was on!

Sub-Prime Loans have a place, for younger people and Homebuyers, Families that once had bad credit, (1980s) or First Time Buyers, and smaller, Entry Level homes, BUT, not for HUGE,,, $750,000 Homes sold to speculators.

Remember these Ads.

“Bad Credit? No Problem!”
“Less than a year ion the job? No Problem!”
“Repossessions on your record? No Problem!”
“IRS Garnishments? No Problem!”
“Foreclosures? No Problem!”

“Why rent when you can own your own home?”

Thomas, rules are not bad, just as long as they are understood by all and protect all. The,,,, Even Playing Field,,, we all hear about.

Good for Wall Street and Main Street. BOTH

Wolves set to a flock of Spring Lambs will surly eat, NOT because they are Evil, but because they are Wolves.

All the best

Knute Neo-LIB

[RoddyMcCorley]

"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."

This may be quibbling, but I have to take exception to the words "only now." The consequences of this folly were very much in evidence in the 1930's, which is why those oh-so-odious regulations were put into place to begin with.

That's the pisser in all this. For the last 25 years, our conservative friends have been laboring mightily to reinstate an economic system that used to fail fairly regularly. They succeeded -- and it failed again. Surprise. (The ultimate goals of the conservative's are admirably summarized by William Greider in "Rolling Back the 20th Century." Google the title -- it'll come right up.)

By the way, Mr. Frank, I finished the book a few weeks ago and have been invoking it in message boards ever since. In fact, I've been invoking its central premise for years, but your summation of it is much more concise and punchy.

[TheIndependenceParty]

So much of the current econoomic trend in America was presaged and paralleled by the changes Jack Welch made in General Electric. Repeatedly he sold assets that made things in exchange for money managers and banking interests. Even a 20% annual profit margin was not enough.

GE, a once proud and major manufacturer, became mostly a bank, with its money racing around the timezones of the world to make more "instant" money. Not, I suspect, what Thomas Edison had in mind, I suspect.

[avraamjack]

.
Excellent point.
.

[Hoelder]

What was that: Be aware of what wish for; you might get it. However irony comes with a high price. Basically, I could have told all these thinks a long time coming and some people still act surprised. It is as much as simple math - of course with an alarming rate of student not being able to apply this, because the conservatives are trying to deregulate schools as well or stuff kids with intelligent bullshit. Since the US never experienced middle ages conservatives have successfully implemented stupidity as a constitutional right. How can you believe that any wealthy person does let trickle down only a few pennies if he does not have to. In order to have a free market you have to remove all unfair practices, but of course the opposite happened. For me the symbol of this is a totally out of it Reagan in Berlin saying the infamous words to the American people only: Mr. Gorbachev tear this wall down. What the American people did not see was that wall was already being deconstructed diplomatically - I was there - a failure of American foreign policy - was done by Germany, USSR, Hungary, Checkoslovakia etc. The systematical deconstruction of the American Government by a party that is against government - ergo against itself - seem to escape people on main street - that's why they have to pay for it and 30 years of disastrous policies.

[Sundialsvc4]

Good post, Thomas, and I do look forward to the book.

One way that I would phrase this is that ... during the last twenty-five years (particularly), "money" tried to take on a life of its own, while "infrastructure" and "domestic production" utterly crumbled. As the supply of "money" grew with reckless abandon, the nation's proverbial gold was being spun into very-real straw.

"Money" is an abstraction. It's a number in an SQL database on a computer somewhere; nothing more or less. This nation of 300 million people slumbers among the idled buildings that are still full of slightly out-of-date manufacturing equipment that once demolished the second-greatest industrial empire on earth to win World War II. The salvation of this country and its economy cannot be made by updating a database. But I see a Rosie the Riveter picture over there that says... "We Can Do It!"

The buffoons who think they're shoe-ins for the White House are both write-offs. Do we happen to have a Leader in the house?

[MPCarr]

it was the Democrats who created the subprime lending situation, and then voted against regulations against these companies, that are responsible for this financial crisis.

Free market does not mean loaning money to borrowers who can't afford it.

The blame is on the Demorats--Jim Johnson, Franklin Raines, Jamie Gorlick, Chris Dodd, and Barney Frank.

[okjoel]

Nice try, but wrong.

[tiggersthotfulspot]

Sure, the Democrats share the blame, but it's really freaking nuts not to see who provides the ideological and intellectual framework for the current handbasket we're going to hell in (rented from China)

The Democrats were all too happy to go along with it, but the craze for deregulation starts with right wing think tanks and "scholars" who ignored the history of the Great Depression and the era before it. Phil Gramm wrote two of the worst bills. If you excuse the Republicans for blame, that makes you not reality based.

[Chetdude]

Some Democrats. The blue-dogs and their "conservative" fellow travelers coupled with REPUBLICAN MAJORITIES in Congress and REPUBLICAN pRESIDENTS accelerated the current inevitable near-collapse of a faith-based, phony economic system.

The "economic" system based on geometrically increasing debt as money CANNOT BE SUSTAINED. It must and will collapse.

The only question is when not whether.

As for me and mine, we're proceeding with the process of Relocalization of our economy and "life style". We are getting prepared for the inevitable collapse:

http://www.relocalize.net/about/relocalization

[Indubio]

This crisis is not about the sub-prime problem. Sub prime mortgages might have triggered the events happening today but the crisis, the real crisis was caused by an unregulated financial system that consumed itself from its own greed. Deregulation may be laid directly at the feet of the Republican party, the party of business and the rich.

[virto]

Actually, the "free market" does make loans to borrowers who can't afford it -- which is why we're in this mess. According to the Bush Administration, the housing market became more "free" when it launched the "Ownership Society" in 2002, which Bush himself described as a way to get rid of the "impediments" that prevented minorities and low-income buyers from obtaining financing by reducing or eliminating the basic credit requirements for getting a loan.

The lenders couldn't care less about the prospective buyers' creditworthiness because they sold the loans as fast as they made them, and everyone in the chain made a ton of money on commissions and other fees.

According to Bush himself, there was no reason that first-time buyers with low incomes "shouldn't have a house just as nice as everyone else." And to make sure of that, the Office of the Comptroller of the Currency (OCC) went back to the mid-1800s to find a statute that supported its argument that state predatory-lending laws.

All 50 states Attorneys General tried to stop the Bush Administration in an effort to enforce consumer-protection laws in their states, but the Administration won. (So much for states-rights conservatism.)

And now you're trying to put this on Democrats. Yawn. We've all heard that one before, pal, and it doesn't work anymore.

[Buckywunder]

Great points all.

I know it is just like a reality-based person to climb down from the lofty heights of rhetorical correctness to point out a slight quibble, but I would say that Andrew Cuomo, a Democrat in the Clinton administration with very high political aspirations, contributed to this mess as well.

As the assistant to Henry Cisneros at HUD and then assuming the duties of the Cabinet position, I have read accounts saying that he was mostly in over his head with respect to the housing and sub-prime mortgage issues and contributed to what eventually transpired.

I agree that this is mostly on the free marketeers and Republicans, but some of the Dems got on board this gravy train as well. Just sayin'.

[mannwich]

Of course it is........

[Poboy]

Q. Why do you think conservatives railed against the Dept. of Education since its creation?

A. Because they wanted a dumbed down public to which they could "market" their brand of dog food.

Now the dog food is so toxic it has to be removed from the shelves.

[deliriousgod]

Who knew? CAB-DRIVERS knew this was coming! People have been talking about this for more than a year and 'experts' like paulson said 'no way- we're fine'. Who told us all and why aren't the people who saw it coming being consulted instead of putting people who were all wrong on this for years at the wheel on the fix?

[Zeje]

You're right! I keep thinking I'm in a twilight zone! I knew it was coming -- knew it was coming by looking around me. Where has everyone else been?

[DickTater]

Thank You Mr Frank.

All very true.

Let's boil it down into even simpler language.

Corporations got everything they wanted. They pocket ALL the profits, and now are nationalizing the debt. They are not really hurting. They stole everything....it is their BOOKS that are hurting. We are going to throw all this taxpayer money to COVER UP the malfeasance and get all the books pinked up and healthy looking. This isn't even about making good on bad stuff....this is paying the bankers and cronies for their theft....and paying to get them off the hook and expunge their bad records.

They turned every regulation agency into their own Ol Boys Network. They made it harder for us to declare bankruptcy, made it easier for corporations to declare bankruptcy. As a bonus, if you declare bankruptcy as a corp, you could stick a knife in UNIONS and also raid the PENSIONS. Oh, and Torte Reform to mainly keep Avg Joe from suing.

Then they started some wars for their Big Bosses....the Defense Contracting War Profiteers. Which helped inflame OIL prices. That not being enough, they let the Oil Patch run off with most of our paychecks. They threw BigPharma a few bones,
and finally, let the Hounds of Finance (their biggest political contributors) loose while they propped the door of the Treasury open and oversaw the complete EMPTYING of the coffers.

Wrecking Crew for sure. In Three Piece Suits and airs of respectability. What a world.

[Bushwillresign]

What he said!! You never put more fuel on a fire. Only in America. Where did all this money go to anyway with this trickle up ecomony?

[stressfreeliving]

Bernanke Knew: NPR Exclusive. 1980s computer model saw this "crisis" coming. Now who evented this computer model?

http://yourwikipediarevolution.blogspot.com/2008/09/bernankes-1980s-computer-model-predicts.html

[ksjprod]

Isn't this their second attempt at a hand-out to Wall Street? Wasn't that whole push to privatize Social Security their first attempt? That was estimated to put about $700 billion dollars into Wall Street too.

[JohnShank]

There is some evidence to suggest that the Democrats' desire to keep Freddie and Fannie funding lower income/higher risk customers helped inflame an already bad situation.

But, tighter regulation does need to take place. And having Republicans and businesses in charge of regulation is like having the fox in charge of the chicken coop. (It's trite, but true)

[Gidster]

Yes Shank, it was them minorities that did it!
They sold fast profit instruments and preyed on those with the least to engorge their portfolios!

[Citizen54]

Yeah, because we all know that it's poor people and non-whites who run the country. Those rich whities, the trust funders, the capital gains survivors, they don't ever do anything wrong. It's those people in the ghetto! Let's punish them!!!

[JohnShank]

I did not suggest it was "them minorities". I simply put forth the idea that it wasn't all wall street types and their republican lackeys. Why, when I say low income / high risk do YOU automatically think minorities??

[theaudacity]

By "tighter regulation" do you mean the bill co-sponsered by John McCain in 2005 when he rallied against Fannie and Freddie as being too big and wild with their money; or do you mean the "tighter regulations" George Bush advocated for in 2003. The DEMS killed them both. Barney Frank stood on the floor of the House and stated that "tighter regulation" would "restrict the amount of people who could buy homes". Well, NO S**T Barney, that was kinda the idea. Back in his legal days, Obama even sued the government and banks for not giving enough low-income families mortagages. He sold these people a dream and then pulled the rug out from under them by setting these families up to fail. If you do one thing today.... search on You Tube for a video called "Burning down the house". The height of Obama's hypocrisy continues to amaze me each and every day.

[albanaeon]

HAHAHA. Freddie and Fannie weren't the root cause of this problem so stop trying to blame them. And in 2003, Repubs were in charge of Congress so the Dems couldn't kill anything. Please try again.

[mommadona]

"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."

Yup, Yup...watch what you wish for. You just might get it.

Now, let's let that "free market" do it's fail thingie.
You can't have it both ways - no 'slightly pregnant' on this one.

[livingontop]

What we make of that is that the A LOT OF the left is just as outraged at this as the Republicans. It was the current administration that wanted an unchecked, carte blanche bailout. The Dems added the conditions but still think this stinks. Where the Republicans are complaining about this had a lot to do with the ADDED conditions - in other words they didn't want more regulation brought in now even though that is at the heart of the problem. I have to give them credit though for at least sticking to their principles of "free market". It works so well...

[QuestionAllAuthority]

...for them, it did.

[ckdogs]

I guess the only good thing about the meltdown is that people finally see that "getting government off our backs" is not a good policy, in the long run. And all the successful, intelligent people, who vote Republican, so their taxes will be lower, can now see that sometimes it costs more to support this philosophy.

[tiggersthotfulspot]

The wingnuts who voted Republican will still vote Republican. As long as they can lord it over others, it doesn't matter how bad the general conditions are.

[Gdebs]

What did Marx say about a rope and hanging themselves.

[ProfessorDuh]

Yes, Hank Paulson is so, so sorry that he has to lift a trillion or so bucks off the taxpayers and hand it out to his pals. His tears of frustration about the situation remind me of those of the Walrus, who tricked the innocent little oysters into a walk and then ate them. But how he wept at their sad fate.
And playing the role of the oysters in this dog-and-pony show will be the U.S. taxpayers.
“It seems a shame,” the Walrus said,
 “To play them such a trick,
 After we've brought them out so far,
 And made them trot so quick!”

The Carpenter said nothing but, “The butter's spread too thick!”