Sunday, November 16, 2008

Economics For Dummies

Watching the G20 mix it up over the worldwide economic crisis really made me wonder why the occupied White House wanted to make it so obvious that the world is waiting for them to crawl back into the hole they've dragged it into. Still more, why ask responsible world leaders in to plan, and announce before you got started that you will oppose the regulations you were supposed to enforce in the first place?

Once again, it looks from the performance being put on as if there's some serious disability behind this country's dysfunction in the highest office. It's tempting to write off the disasters as incompetence. But that's not enough to explain the bumbling wreck at the country's helm.

Today I am glad to see an op-ed from Eliot Spitzer, who was such a star as prosecutor in the office of Attorney General, then Governor, of New York before he let personal weaknesses bring him down. He details the efforts he put forth to keep Wall Street from self-destruction, which would have been managed if the laws had been enforced. The opposition of the White House destroyed those attempts to use the laws, and brought this country into another disaster so large it has afflicted the economies of the world.

Those of us who raised red flags about this were scoffed at for failing to understand or even believe in "the market." During my tenure as New York state attorney general, my colleagues and I sought to require investment banking analysts to provide their clients with unbiased recommendations, devoid of undisclosed and structural conflicts. But powerful voices with heavily vested interests accused us of meddling in the market.

When my office, along with the Department of Justice, warned that some of American International Group's reinsurance transactions were little more than efforts to create the false impression of extra capital on the company's balance sheet, we were jeered at for attacking one of the nation's great insurance companies, which surely knew how to balance risk and reward.

And when the attorneys general of all 50 states sought to investigate subprime lending, believing that some lending practices might be toxic, we were blocked by a coalition of the major banks and the Bush administration, which invoked a rarely used statute to preempt the states' ability to probe. The administration claimed that it had the situation under control and that our inquiry was unnecessary.

Time and again, whether at the state level, in Congress or at the Securities and Exchange Commission under Bill Donaldson, those who tried to enforce the basic principles that would allow the market to survive were told that the "invisible hand" of the market and self-regulation could handle the task alone.

The reality is that unregulated competition drives corporate behavior and risk-taking to unacceptable levels.

The laws written to prevent another Great Depression from ever happening again were dubbed by the rowdies in the White House as quaint and outmoded, useless regulations that Wall Street could ignore without hurting anyone. Knowing that this behavior was irresponsible, and counter-indicated by experience over decades, the law enforcement powers in New York were brought into play, and lost. The device of pre-empting state efforts to enforce laws has been a favorite of the administration, and has been very destructive to efforts to prevent disasters. It has also been brought into play to prevent recovery of damages for injury from faulty products. The lawless in the White House won this round, while the country lost.

The trust this country has lost among world powers will have a chance to revive in the new administration. It would be easier if the administration's representatives were eliminated entirely from any role in the hard efforts ahead for President Obama. They have shown they are not wise, and not trustworthy. We can't ask economic leaders of other countries to accept discredited functionaries, and shouldn't ask our own citizens to accept them, either.

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Anonymous Anonymous said...

If you think economics is a complicated discipline that is reserved for theorists and the intellectual elite and has nothing to do with you.

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3:17 AM  
Anonymous Anonymous said...

reagan and bush I had the S&L scam, which started with a change in banking regulations. Glass-Stiegel was repealed under clinton, as were changes in the accounting laws. While the bush II monsters have really taken things to extraordinary lengths, ALL the recent administrations and the respective congresses are to blame. Republican or democrat, they are pro-wall street and anti middle-class, to the core (excepting a couple of Senators and Representatives), and will remain so until forced to change by campaign finance and criminal law. I mean look at UBS, the Swiss bank that is holding hundreds of billions of dollars for tax-evading US citizens. Major executive in UBS? Phil gramm, ex-US Senator. In any country respectful of the rule of law for EWVERYONE, he'd be busting rocks in the hot sun, if not swinging from a gallows for treason.

7:16 AM  

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