Congressional Republicans have concluded that screaming foul about the banking bailout and blocking financial reform is a clever strategy for the fall elections.
This approach ignores some pretty basic history: that the banks imploded while Republicans held Congress and the White House; that President George W. Bush started the rescue; that many Republicans voted for the bailouts; and that they stabilized a financial system that was perilously close to collapse.
More important, it’s a distraction from the very real reasons the nation needs to tighten the rules governing finance. They were on vivid display on Tuesday in a hearing room just down the hall from the Senate floor where Republicans voted the day before to block debate on a Democratic financial reform bill.
Current and former Goldman Sachs officials tried to defend their practice of trading incomprehensible mortgage-based investments of little demonstrable economic value and enormous destructive capacity. Instead, they underscored why much of this work should be curtailed.
The Securities and Exchange Commission has accused Goldman of defrauding clients by selling them a complex instrument without telling them it was designed so another client could bet against it. Testifying before the Senate subcommittee on investigations, Goldman executives denied withholding information. They insisted there was nothing wrong with selling mortgage-backed products while placing bets against them.
They called it “risk management.” Most people call it stacking the deck.
We do not know whether Goldman broke the law, but we know this gambling is too dangerous. Banks like Goldman turned the financial system into a casino. Like gambling, the transactions mostly just shifted money around. Unlike gambling, they packed an enormous capacity for economic destruction — hobbling banks that made bad bets, freezing credit and economic activity. Society — not the bankers — bore the cost.
That’s why objecting to financial regulation overhaul on the grounds that it might allow future bailouts is such a specious argument.
The bailouts, which many Republicans acknowledged were necessary at the time, cost taxpayers about $87 billion, or 1 percent of gross domestic product. The crisis cost more. Falling tax revenues, unemployment insurance for millions of jobless workers and a fiscal stimulus to stop the economy’s slide is projected to boost the federal debt to more than 65 percent of G.D.P. next year.
Financial reform is needed to try to ensure such a crisis never happens again, and the bill cobbled together by Senate Democrats is reasonably tough. It would ban many — unfortunately not all — of the private, custom-made derivatives at the center of the financial meltdown and force most derivative trading onto open exchanges. Banks trading in custom-made products would have to build larger cushions of capital to protect themselves.
The bill would establish a consumer protection agency to stop predatory lending, impose new oversight on hedge funds and make it possible for regulators to dismantle big banks that were deemed to pose an imminent risk of failure. And it would create a $50 billion fund, by the nation’s largest banks, to cover commitments of a failing institution that was being wound down.
Whatever Republican campaign mailings may say, the fund was designed to avoid bailouts. The bill’s failing is not that it’s too weak. It’s that it could be stronger.
Remember Bush was the first President with an MBA. That really worked out for the country. The business-first mentality of the Right Wing [see Supreme Court ruling giving corporations unlimited campaign spending] is a theory that has yet to be proven and has about a trillion examples of how it failed.
The latest insult from Fox/Beck/Right is calling Democrats and liberals "progressive". The alternative would be "reactionary". It actually highlights the difference between the two parties perfectly. Democrats see a problem and want to stop another disaster in advance, the Republicans are willing to keep things the way they are and just respond to the next catastrophe as if they could not see it coming. [9/11, Katrina and Wall St/Sub-prime]
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