In the Shakespeare play, Caesar was told to beware the Ides of March. Wikipedia explains:
"On his way to the Theatre of Pompey (where he would be assassinated) Caesar saw the seer and joked 'Well, the Ides of March have come,' to which the seer replied 'Ay, they have come, but they are not gone.'"
This Ides of March have found our country at the cusp of change, and change can bring danger. We have two major initiatives on the verge of approval: health care and financial industry reform. At stake is the solvency of the banks and Wall Street, some would argue, who stand to implode if given to their unrestrained greed. Meanwhile, change in health care could burden every American with rising health care costs, in a system that's twice as expensive as other industrialized democracies, and only ranked 37th.
Yes, change is needed but the questions remain: is the federal government bringing changes that will help the people (and not corporations), and who is deciding the agenda? We can surmise that change will come, but the federal government can't reign in the culture of greed that dominates our financial system. Likewise, any proposed remedies will only be as effective as the intent of their designers, who we must consider highly biased on the side of industry.
Some might say we should abandon regulation, and let the too big to fail to fail, like giant Mastodon too big and slow to last in an age of smaller, more nimble beasts. This is the way of nature after all, so--the economic libertarians might argue--so too should the market be allowed to punish the weaker companies, who are less attractive to investors. Instead, we had an Obama administrations whose first act was to give Citigroup over $300 billion, and GM/GMAC continues to get periodic help.
Yet when our government tries to meddle, it does screw things up. It swings from one end of the regulatory spectrum to the other, from unregulated free market to socialism for the rich. The root of these inadequate solutions springs not from the notion of trying to regulate, but rather not doing it well, or too invasively, too often or not at all. We should strive for moderation in all things, as the Roman dramatist Terence said, and the effectiveness of regulation would be well served by moderation. Moderation, in turn, requires disaffected observers without bias, a condition that modern Washington hardly inspires, and a good dose of enforcement, which entails a willingness to punish.
I read a piece in the New York Times today about the proposed financial industry reforms spearheaded by outgoing Senator Dodd (D-Conn.). You may have heard about Elizabeth Warren's efforts to establish a department of consumer regulation to prevent the kind of abuses that led to the banking crisis of 2008-__. The regulatory body would oversee lenders and financial entities from what I consider "being too greedy."
We've all seen the payday lenders and other bottom-dwellers as we drive through some of the seedier sides of town. It's easy to imagine some loan sharks operating out of those dingy storefronts. We can easily picture some poor sob having to borrow at some usurious rates, to feed his family, being that he has no bank account or credit card and no way to cash his paycheck save at some high cost.
Now the financial services reform bill is a giveaway to industry. It rewards the Fed with control over the new department. The Federal Reserve, by the way, is the same Fed that is widely blamed for creating the conditions that led to the banking crisis in the first place. The Fed is a private entity which serves the wealthiest banks, although the President of the United States does select the Federal Reserve Board President.
Senator Dodd from Connecticut--which not so incidentally happens to be located in one of the nation's wealthiest states where numerous financial companies are headquartered--is retiring. Dodd's departure should herald a split from with the landed elite who get politicians to pass laws or weaken regulation, depending on the status quo or political sentiment in Washington.
We imagine how politicians would act if freed from the chains of serving their richest campaign contributors, like what we often see with lame duck presidents who, for instance, might be prone to go after Israel, a virtually unheard of (until the recent spat) occurrence. But with Dodd, we'll see nothing of the sort. Instead, Dodd is using his disconnection from the electorate to spearhead a flurry of giveaways to the financial industry, chief among them the purported "reform" package he claims to offer. Without any voters to face, he's used his lame duck status not to do his job for voters, but to screw them on behalf of his corporate patrons and the lucrative opportunities awaiting him after his "service."
Naomi Klein's labelled it disaster capitalism, and the practice is now in vogue in Washington. Rather than correct a fundamental wrong--in this case the circumstances identified by Elizabeth Warren as prone to causing systemic risk--the disaster capitalists blame the failure on government regulation. They would say that government has failed fundamentally to protect the citizens and therefore it's the private sector's turn (to screw things up.)
Disaster capitalism works so well in Washington for two reasons. First, Washington is a town that loves its myths. Myths are created for any number of purposes, but first and foremost they are meant to maintain the facade that Washington is still in control over the economy and country.
Once the capitol culture surrounds an issue, and defines it one particular way, no matter what common sense may say, it becomes what is known as the Washington consensus. For what the Washington consensus lacks in truth and justified cause, it makes up for in sheer repetitiveness and dumb loyalty. Nowhere is the evidence of Washington consensus clearer than our Middle East policy, created by and for the benefit of another country, a policy based entirely on the myth that Afghans (none of which were on the planes) should be killed for supporting al Qaeda, when in fact the Taliban offered up OBL twice to us.
I stray, but I do hope you get the point, which is that logic and reason don't mean much to Washington. Once our government gets it in their head to do something, the reasons don't matter. So when a crisis comes, Washington can't help but design some "solution" which they presume will rectify the problem, but we all know just tends to makes things worse.
This takes me to the second reason why disaster capitalism works so well in Washington: the people's representatives no longer represent the people! This acknowledgement may not be news, but it is a central fact that allows our elected representatives to go about rewarding industry for regulatory failure, never mind that it was the elimination of Glass-Steagall, combined with weakened regulatory standards, that led to the spike in systemic risk. As I've written about here before, commodities speculation provided perhaps the best example of what can happen when fractional reserve banking and free money meet, sanctioned by loose (35-to-1) margin requirements.