Outgoing President Bush sat glumly on Inauguration Day as President Obama proclaimed a new era of liberty and justice for all — a proclamation that brought global acclaim and new hope to many. Sitting in the cold air Bush may have reflected on his own pledges eight years before.
In what world will the SEC regulate Wall Street adequately? Wall Street’s financial architecture puts it beyond effective regulation. The whole superstructure of modern finance capitalism is designed to enrich the few at a relative cost to the many. Wall Street is a powerful special interest. Powerful interests aim at leveraging congressional legislation so that taxpayers unwittingly provide subsidies — regulatory benefits that produce lucratively skewed takings for the privileged. Wall Street plays this game with extraordinary craft, notwithstanding a few slip-ups of late.
In recent times David Weidner, MarketWatch commentator, has written some truly thought-provoking essays about Wall Street. In several articles he courageously challenges the accepted market ethic, prodding market participants to find higher standards and better practices. Admirably, Mr. Weidner does not shelter the wrong-doings of the Street. His recommendations provide plausible ways forward at a time when regulators need a fresh vision.
The American economy could operate more safely by looking to the essentials in Aesop’s Fables than by following Irwin Kellner. Mr. Kellner’s spending advice might pump up the stock market for a short time — long enough to allow elites to dump unwanted holdings at better prices — but would serve to weaken the U.S. relative to other nations like China. Furthermore, added borrowing will increase the national calamity once there is insufficient demand for Treasuries to support the public debt.
One war is over. Another one begins. The war to save America from plutocracy was lost this week as the federal government capitulated to financial sector demands for fresh capital and more bailout guarantees. Naturally, the Bush and Obama administrations don’t see themselves as losing the financial war. But they’re two of a kind when it comes to Wall Street. Just consider Obama’s willingness to work the phones to U.S. Senators to secure more money for financial elites.
Federal Reserve Chairman Bernanke claims that banks need more aid if we hope to return to economic growth anytime soon. What he really means is that banks and leveraged investors need inflationary economic growth if they are to get the type of returns that widen the gap between the wealthy and everyone else. This is why Fed governors have been peppering their speeches with concerns about inflation falling below “desirable levels.” What is the desirable level for inflation?
The disconcerting story of Robert Rubin's career overlaps the maddening story of Bernie Madoff's livelihood: Both men held elevated positions on Wall Street, and both believed in an approach to capitalism that is dangerous to the common good. In Madoff's case he turned the general architecture of the stock market into a personalized business, thus making himself liable for reproach that the general market has largely escaped: formal Ponzi status. What percentage of the American public understands this?
A movie about Bernie Madoff should be made if it will help Americans see that covetousness for undeserved gain keeps us from setting up an honorable and just architecture for our financial markets. The movie needs to focus on more than the Madoff family scandal. It needs to evaluate the scandal of the American financial mind, and do so in quite the same fashion that the Christian scholar Mark Noll evaluated “The Scandal of the Evangelical Mind” in his 1995 book.
Some market observers opine that we ought to be thankful for the fiscal stimulus provided by Paulson’s Troubled Assets Relief Program (TARP). They argue that the U.S. economy would be in a deep hole without TARP. Probably. But that deep hole might be a better spot than the deeper pit of lost governmental legitimacy we now find ourselves in as TARP socializes the investment errors of wealthy speculators. It may be that the Secretary of the Treasury’s radical action will help us skirt a severe recession and even partially re-inflate capital assets in the near term.