What Would Have Been a “Fair Policy Response to the Financial Crisis?” Less than a decade after commercial banks argued for the destruction of the Glass-Steagall Act on the grounds of “fairness” they were back in Washington begging for a rescue. A truly “fair” policy response to the threat of a system-wide financial implosion would have been for the government to step in and appoint independent trustees to oversee a very deliberate and orderly dismantling of A.I.G. And all the reckless commercial and investment banks that were basically insolvent should have had trustees appointed as well. Relative order could have been maintained and the stock and bondholders that voted for the boards that allowed their management teams to gamble recklessly (while receiving astronomical compensation packages) would have taken every nickel of the losses.
Fairness would have required President George W. Bush, and candidates Barack Obama and John McCain to demand an immediate reinstatement of Glass-Steagall. These were the “fair” things to do, but of course this was not what the policy response was. Washington isn’t fair it is a place where influence is acquired wholesale and sold retail. Instead of fair policies, armies of mercenary lawyers descended on Washington D.C. With access to both elected and appointed officials they argued for a slightly different version of “fairness.” Peddling a sense of “fear” the commercial and investment banks in New York swayed our “leaders.” Carefully crafted predictions of total financial catastrophe were offered to the Bush Administration officials, Nancy Pelosi, and Harry Reid.
The scare tactics worked. No doubt investment and commercial bankers must have been sighing in relief as both the outgoing and incoming members of the executive and legislative branches of our government all found something they could agree to; this being a fresh round of taxpayer-financed government folly.
Adding insult to taxpayer injury, our elected officials and their chief regulators also encouraged each gigantic Wall Street investment firm to quickly file for bank holding company status. By being designated as depository institutions, investment banks and the poorly managed financial service subsidiaries of industrial companies (like General Electric) were allowed to float hundreds of billions of dollars in FDIC guaranteed notes at minuscule interest rates. In the meantime, all responsibly behaving individuals and organizations were already required by tax laws to pick up these government dining tabs.
Sadly, there continues to be a seemingly perpetual obsession on the part of the financial industry executives living in the tri-state area around lower Manhattan, to extract absurd levels of compensation from our economic system without actually producing any net positives except predictable streams of campaign contributions. And as has also been the case for decades, elected officials in Washington, obsessed with perpetuating their personal political power machines, institute policies that allow them to maintain access to campaign contributions from the investment and banking industry.
On Saturday morning December 12th, President Obama deplored the latest round of compensation bonuses about to be paid to Wall Street “Fat Cats.” He suggested that Wall Street still doesn’t “get it?”
News New Mexico disagrees. Wall Street does get it. And those that continuously engage in efforts to procure campaign contributions from Wall Street also “get it.” And though we live far away from New York and Washington D.C. we also get it. What we get is that there is an overwhelming congruency in the so-called “Fat Cat” enrichment process.
The Financial Media and Populism - Unfortunately, many members of the financial news media are remarkably biased towards what is good for their geographic neighbors. They also are also predictably protective of their personal sources of so-called financial news. Accordingly, the most of the blatant conflicts of interest and insidious liaisons between Washington D.C. and Wall Street are completely ignored or treated as minor afterthoughts by our financial press.
Nearly every day on networks such as CNBC (a General Electric subsidiary), show hosts accuse those that speak too loudly against bonuses paid to government subsidized Fat Cats as being closed minded anti-free market types. Some CNBC contributors made the assertion that most of the outcries against the corrupt links between Washington and New York are merely signs that emotion-based “populism” is finally getting out of control.
Eliminate All Opportunities for Fat Cats - In the end, President Obama is right about “Fat Cats.” Fat Cats devising ridiculous financial schemes that wind up getting backstopped by other campaign contribution collecting “Fat Cats” are weakening America. Unfortunately, the truth is considered discomforting by most elected officials. Under our current system, all incumbents have huge campaign fund raising advantages. And by definition, the very nature of these advantages creates unacceptable conflicts of interest that leave them unable to govern wisely.
The greatest deficit a woefully uninformed American electorate faces is a wisdom deficit. With all the partisanship, the distractions, and the conflicts of interest, anyone still hoping the majority of the electorate will some day summon the wisdom to demand that the financial advantages our system provides for all elected officials be eliminated is engaging in wishful thinking. Fat Cat accusations coming from incumbents are hollow. Until all elections are funded by taxpayers instead of Fat Cats, we should recognize that ALL elected officials are “Fat Cats” too.
Fat Cats - Part III
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