I’m trying to post to my blog using my iPad and the WordPress app. I’m not sure about this. I think that I’m going to have to edit this when I get home.
Dean Baker, economist, makes a great point. We can reign in Wall Street without killing the economy or letting them run free. There is a middle ground. Our economic meltdown was the end result of two decades of deregulation. I’m sorry to say that both parties– Democrats and Republicans – believed in this craziness. Stupid ideas, like the self-correcting market, were eagerly embraced by nearly everyone. Democrats and Republicans bowed to the greatness of Wall Street. Complexity was mistaken for the soundness of the product. We were told by Greenspan and others that these new highly complex tools decreased risk when in fact they increased risk; not to the individual company, but to the system as a whole. these derivatives multiplied the risk to the taxpayer.
So the question is how to fix this mess. What are our goals? First, we have to decrease risk to the taxpayer, you and me. If someone on Wall Street would like to invest in AAA-rated mortgage back securities that are really worth the price of one month old popcorn, then we shouldn’t have to bail that guy out. We have to decrease the risk to the American people. Wall Street shouldn’t have the ability to play with our home mortgages. For more than 50 years, home mortgages or simple contracts between a local bank and a homeowner. The bank made money. Homeowners rarely defaulted. There was nothing wrong with that system.
Secondly, over the last 20 years Americans have gone on a spending spree. We all decided to use credit cards which were rarely using in the 70’s. We decided that flipping our house was not just an interesting TV show but a great idea that could lead to financial freedom. After the bust, we change our minds. Americans have decided that using our house as a piggy bank was probably a terrible idea. So, we aren’t going to spend as much as we did a couple of years ago. We aren’t going to try to keep up with the Jones’. With less spending our economy has to contract. This isn’t Obama’s fault. It is our response to the economic collapse. To be honest, our response to Wall Street is 100% understandable. In times of uncertainty we need to save money and not spend it.
For years, the American economy hummed along just fine without credit default swaps, collateralize debt obligations or synthetic collateralized debt obligations. These are simply instruments which hide risk. They have nothing to do with manufacturing or improving Wall Street. They are a great way to suck money out of mainstream. We need more than simple regulations. These are simply high-stakes bets and when the music stops we are left holding the bag. This is no longer acceptable. If Wall Street wants to play casino, that’s fine but they just can’t play it with my house and my money.
Finally, we haven’t addressed “too big to fail”. We have a huge concentration of money in only a couple of companies. Because these companies are so big, if they take stupid risks with large sums of money, there is an assumption that the we, the American people, are going to bail these guys out. Companies that invest in crazy investments should feel the sting of failure. We need to limit the size of these huge companies so that they can’t threaten our pocketbooks.
besides tying Wall Street bankers to a pole in time square, what are your thoughts on Wall Street reform? How do we fix Wall Street?