Wall Street collapse shows need for regulation

Posted on September 18, 2008 by

Free market ideology led to meltdown
[Update: The NY Times wrote a killer article validating my assessment – see October 8, 2008 story:
“THE RECKONING
Taking Hard New Look at a Greenspan Legacy”
http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html?_r=1&em&oref=slogin
As anyone who has seen the movie “It’s a Wonderful Life” and rooted for Jimmy Stewart’s (George Bailey) fight to save the local Savings and Loan and middle class homeowners of Bedford Falls from the greedy and predatory Mr. Potter knows intuitively, one of the key New Deal reforms enacted in the wake of the Great Depression was the institutional separation of commercial banking from speculative banking/investment and the creation of strict regulatory oversight of Wall Street.
Ever since then, radical free market “deregulation” advocates and the Republican party have sought repeal of those New Deal reforms.
With the ascendence of the Reagan Administration, they have been very successful.
The current Wall Street meltdown is directly related to free market ideology, “deregulation”, and repeal and of New Deal laws and programs designed to prevent exactly the problems we now see on Wall Street.
“The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) in the United States and included banking reforms, some of which were designed to control speculation. … Provisions [of Glass-Steagall] that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999 by the Gramm-Leach-Bliley Act signed by President Bill Clinton.”
wiki: http://en.wikipedia.org/wiki/Glass-Steagall_Act
I surely am no expert in financial regulation so am reluctant to attempt to write my own essay, but this is the best analysis I’ve seen of this issue – the article is strongly recommended. Here’s the lede paragraph:
“Free-market extremists brought us this needless economic collapse. Here’s a rundown of the mistakes we’ve made and the reforms we need now.
“The current carnage on Wall Street, with dire spillover effects on Main Street, is the result of a failed ideology — the idea that financial markets could regulate themselves. Serial deregulation fed on itself. Deliberate repeal of regulations became entangled with failure to carry out laws still on the books. Corruption mingled with simple incompetence. And though the ideology was largely Republican, it was abetted by Wall Street Democrats.”
Source: Only a Roosevelt-Scale Counterrevolution Can Prevent Great Depression II
http://www.alternet.org/workplace/99241/
{Update: first of many regulatory interventions:
Securities regulators put temporary ban on short selling
by The Associated Press
Friday September 19, 2008, 6:16 AM
Federal securities regulators, in an effort to boost investor confidence in the face of a market crisis, took the dramatic step today of temporarily banning the trading practice of betting against financial stocks.
The move, announced on the Securities and Exchange Commission’s website, will temporarily ban what is called short selling of nearly 800 financial stocks.
http://www.nj.com/news/index.ssf/2008/09/securities_regulators_put_temp.html

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14 Responses to Wall Street collapse shows need for regulation

  1. JRacioppi says:
    September 18, 2008 at 9:53 AM

    Wall St. is a glorified casino; fiat money changing hands and producing nothing; No oversight (obviously) whatsoever; the subprime crisis was a giant ponzi scheme and the Fed Gov’t pumps hundreds of billions into the system to keep it proped up.
    Where is the atty general? The SEC? Does anyone out there have a clue?

  2. nohesitation says:
    September 18, 2008 at 9:58 AM

    JRacioppi – please read the Robert Kuttner article I excerpted and linked to. He lays it out in detail with good writing and accessible language.
    The US AG is part of the crony capitalism of the Republicans. He is also limited by changes ion law adn weakened oversight.
    The NJ AG reports to a Wall Street Democrat that help creat the problems.

  3. ganzeinfach says:
    September 18, 2008 at 10:03 AM

    The rise of relativism in postmodern Western life has led to the collapse of a moral consensus. With everyone making up his own rules when it comes to right and wrong, is it any wonder our economic system is under stress? These financial troubles are the direct result of our nation turning its back on God. Capitalism is like a three-legged stool, resting on political freedom, economic freedom, and moral restraint. Take away moral restraint, and the stool collapses.
    And that is what is happened here. Moral restraint was taken away. Sensing easy money Wall Street bundled up mortgages without regard to risk, sold them off, and made a big profit. Risky, even dangerous mortgages were then being offered to people who had little chance of paying them off. And when the housing market slowed and house values went down, the mortgage market began to collapse like a house of cards.

  4. nohesitation says:
    September 18, 2008 at 10:11 AM

    ganzeinfach – restraint and morality do not require a belief in God.
    The US is govened by laws, not man or God.
    Let’s keep God out of this, OK?

  5. mh44 says:
    September 18, 2008 at 11:28 AM

    Bill, this is BS and so far off truth. No wonder the SL is going under.
    What happened to Sarbanes-Oxley, post Enron? Didn’t help here.
    Clinton, not Regan, repealed GS and added insult to injury by the Community Reinvestment Act (CRA) which pushed for more loans to low income people who could not pay them back. It also allowed securitization of sub-prime loans that Fannie and Freddie bought up using taxpayer backed money.
    These 2 Mae’s are regulated and overseen by Congress, with definders Barney Frank and other liberals that blocked all reform of them. The Bush admin even warned of the problems at the Mae’s. These execs got rich on bonuses paid on more and more sub prine loans they bought. They then sent contributions back to Congress to aviod any oversite or more regulations, basically getting rich and leaving the mess for the taxpayers.
    For a government that is Trillions in debt and can’t run it’s own house how in the world will more regulation help. More government and moving towards socialism will wreck this great country.
    Why not call for congressional hearings to bring those accountable before the American people. Don’t hold your breath, because most are Dems with republicans also mixed in. Congress was so quick to accuse and investigate after Enron, but why not now.

  6. jbken says:
    September 18, 2008 at 11:46 AM

    Real regulation would help, but pretend regulation just obscures problems.
    You see the banking problems but insurance has been essentially unregulated for decades and with G-S repealed they got to ‘invest’ for their bottom lines. The only reason insurers aren’t tumbling over (yet) like investment banks is that they maintain liquidity (i.e. they can set their rates through their captive lines like auto, malpractice, homeowners, etc. and just jack up premiums).
    Real reform is not going to happen. It has nothing to do with ideology or politics; it’s just greed and that’s very difficult to reform.

  7. nohesitation says:
    September 18, 2008 at 11:55 AM

    jbken – Milton Freidman;’s mantra was “Greed is good”.
    There is a direct relationship between that ideology and the deregulation of financial markets that caused the collapse we are now witnessing.
    Ideas have consequences.

  8. nohesitation says:
    September 18, 2008 at 12:33 PM

    mh44 – be specific – what exactly in the Kuttner article is “so far from truth”?

  9. johnbury says:
    September 18, 2008 at 3:47 PM

    nohesitation,
    I’m ambivalent on Friedman because he doesn’t define ‘greed’.
    There are a lot of things I want like more time, better health, and a few other things that I’ll leave out for now, but does my wanting them make me greedy? It’s just too subjective. What may be one person’s idea of a right is another’s luxury. There’s a lyric from a Leonard Cohen song that
    goes:
    I saw a beggar leaning on his wooden crutch,
    he said to me, “You must not ask for so much.”
    And a pretty woman leaning in her darkened door,
    she cried to me, “Hey, why not ask for more?”

  10. nohesitation says:
    September 18, 2008 at 4:02 PM

    johnbury – that’s an angels and pinhead perspective.
    The point is that Freidman advocated laissez-faire – totally unregulated markets and pursuit of individual self interest un-coerced and unrestrained by government (or even moral restraint).
    Those ideas have consequences – and Freidman and the Chicago Boys had an enormous influence on public policy and law. .

  11. johnbury says:
    September 18, 2008 at 5:11 PM

    That’s the definition of anarchy.
    I suspect Friedman gained in popularity because so many rich people anticipated benefiting from his ideas if implemented (same with those fans of Ayn Rand).

  12. nohesitation says:
    September 18, 2008 at 5:17 PM

    johnbury – I was focused on Friedman’s views of economic market transactions.
    Of course Freidman believed in government and law – but with a role essentially limited to to enforce contracts, protect private property, maintain domestic peace (police) (and a military wage foreign wars to provide export markets and guarantee unfettered access to energy and natural resources!)

  13. richardcwa says:
    September 19, 2008 at 3:34 PM

    As more and more information is coming out about the financial mess, we are seeing how the Fannies were used by politicians as a money pool. Libs wanted to get mortgages out there to people who could not afford them with no background or credit checks.
    Who in their right mind would sell something to someone you knew could not pay for it????
    Barney Frank and Chris Dodd did all they could to make this situation out to what it is today. They should be investigated!
    Remember ENRON, congress demanded and got an investigation. Unfortunately, it will not happen here because the dems and their buddies in the MSM want to cover it over.
    Ob and his VP were #1 and #2 on the handout parade from the Fannies.

  14. nohesitation says:
    September 19, 2008 at 3:54 PM

    richardca – the unregulated greed on Wall Street is what drove the reckless predatory loans.
    The Dems were the origin of the laudable public policy goal to increase affordable housing adn home ownership rates.
    Wall street took advantage of that.

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