Saturday, September 27, 2008

The Nationalization of Risk

Supply-side economics and the accompanying policies of the last thirty years have produced great returns for Wall Street-ers while devastating the real economy and the folks on Main Street.

As the financial sector has become a larger portion of the economy (representing somewhere between 15 to 20 percent of total sales, receipts, and shipments), market volatility has increased, which has led to a precarious existence for most Americans. Yet cranks preached these financial changes as increasing efficiency, improving liquidity, lowering rates...all of which would supposedly help retirement accounts, grow the economy faster, create jobs, and on and on. As empirical evidence of the last thirty years shows, this is a total fabrication.

The odd part of this story is that these supposed free marketeers want Government out of their way and off their back, and blame public sector regulation for any blips in the market, yet when their mismanagement and overly-risky investment strategies go belly-up and risk collapsing the whole economy, then Government must step in to save the day. Economists call this phenomenon moral hazard.

The really strange part of all this is the same characters that established the corrupt financial practices that led to the current mess are the same people offering advice and looking to make a profit off "fixing" the problem.

Robert Kuttner details the problems of deregulation and offers some necessary reforms.

With regards to the 2008 Presidential election: "McCain voted for abolishing all of the significant rules put in place at the time of the Great Depression designed to prevent a repeat," as Robert Scheer reports.

And, there is a need for prosecution of some sort for this corruption, malfeasance, lack of ethics and deceitfulness that has taken place.

Also, finally, rather than continuing to "bail out" the causes (corrupt businesses that are too big to fail) of these financial meltdowns, why not just provide a real stimulus check to every working-aged man and woman in the country? If we must nationalize businesses, let's at least do this alongside reforms to the financial system (reimplementing a 2008 version of the Glass-Steagall Act), and with language that assures a portion of the profits made from selling off the assets of these mismanaged corporations goes toward Social Security, pension & retirement plans, energy independence, public works infrastructure programs, etc. Or to at least assure that whatever amount we decide we must spend on bailouts, an equal dollar amount will go toward those aforementioned public concerns. As long as we're pumping all this money into the economy, we might as well get all the bang for the buck we can and also initiate a new New Deal.

For Further Reading:
A Crash Course in Economic Crashes
Big Rate Cuts and Fiscal Stimulus
Biggest Corporate Bailouts
Bush's Disastrous Rescue of the Finance Industry
Financial Crisis: Time for a Citizens Plan
Financial Meltdown Continues

Gaining With Trade
History of US Government Bailouts
NAFTA at Ten: The Recount
Paulson Bailout Plan a Historic Swindle
Progressive Conditions for a Bailout
Time to Take a Second Look at Our Free Trade Agreements

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