In the midst of what has been called the “worst economic crisis in our nation since the Great Depression,” it’s time to take a deep breath and step back from all the party blame.
Both sides are so busy blaming the other that the real underlying cause is being ignored. This issue is not a Democratic issue or a Republican issue, but more an issue of a philosophy that has failed.
The philosophy that has brought us to this point is a laissez-faire economic policy that not only argues for “letting the market work,” but also involves deregulating every aspect of the economy and outsourcing government to the cheapest bidder.
It is a philosophy of Enron rather than Proctor and Gamble. It is a philosophy of instability and wild swings in the market rather than periods of long extended growth.
It is a philosophy of black markets, rather than a philosophy of what is best for the greatest number of people. And it is a philosophy that has brought a great deal of wealth to a very small group of people.
It is in many ways, it is a religion. You will hear it as a frequent answer for economic ills. Let the market work No other rationale, just let the market work.
It is a religion that both parties in the country have bought into.
Even with recent failures, not many are questioning this underlying philosophy. Though the bailout proposal goes against this so-called “free” market and that is one reason so many people are against it.
It is as if all you’re life you’ve been told not to steal and suddenly it’s ok to steal.
Few, though, are questioning the principle itself. Why did these giant corporations fail? Could it be a by product of the way this principle has helped structure the economy?
In hearings during the Great Depression, Congress examined the relationship between investment banks and commercial banks and determined that there were conflicts of interest.
An investment bank that was also a commercial bank could gamble all of their money on a bad bet and suddenly, what happened? The bank lost the bet and lost the people’s money.
This is exactly what happened with the subprime mortgage crisis. The investment arm of the bank packaged mortgage debt from the commercial side of the bank into exotic packages and resold them.
To help make sure the Great Depression never happened again, the government passed the Glass-Steagall Act in 1933.
Glass-Steagall established the FDIC and made sure that banks and investment firms remain separate due to conflicts of interest that helped cause the Great Depression.
In this instance, government helped define the conditions under which the economy would work best for everyone.
In 1999, however, the Gramm-Leach-Bliley Act was passed after intense lobbying from the financial services industry and signed into law by Bill Clinton.
Since Gramm-Leach-Bliley there has been massive consolidation in the industry and change as commercial banks looked to cross market investments and investment banks looked for new ways to make money.
The thought was that the market would establish regulations or companies would self regulate.
However, greed overruled voluntary regulation. Christopher Cox, chairman of the SEC tells us that: “The last six months have made it abundantly clear that voluntary regulation does not work.”
Would regulations like Glass-Steagall help ensure this doesn’t happen again?
Shouldn’t we at least investigate the root causes of the failure and work to try to make sure it doesn’t happen again?
This is the true failure of the bailout package. Instead of simply writing a blank check to the companies that created this mess, shouldn’t we look to establish some conditions that make sure the market works for everyone?
Letting the market work leads to monopolies, conflicts of interest, and putting greed before all other principles. Instead, our driving philosophy should be “markets that work for everyone.”