Let's be clear: the state of panic and fear that gripped Wall Street and markets around the world this week was a creature of Washington's and Wall Street's own making.
After 30 years of deregulation, begun under the Nixon Administration, rapidly accelerated under the Reagan Administration and au courant ever since, we have witnessed the energy crisis of the late 1970s, the stock market crash of 1987, the savings-and-loan crisis of the late 1980s and early 1990s, the tech bubble of the late 1990s, the housing bubble as well as the derivatives scandal of the 21st Century to name just a few casualties of financial insanity and greed.
Deregulation has not been confined only to the financial sector: it has been rigorously applied to elections law, telecommunications, airlines, railroads, trucking, and a host of other sectors.
Deregulation is/was part of the ideological core of the modern conservative movement: its champions were from the University of Chicago School of Economics. They were influenced by the Austrian School that included the likes of Ludwig von Mises and Friedrich von Hayek and their followers, such as former Fed Chair, Alan Greenspan , and the economist, Milton Friedman. It complemented Republican principles of small government, laissez-faire capitalism, free markets, trickle down economics (or voodoo economics as George H. W. Bush once called it), lower taxes on the superwealthy, and elevation of private interests over and above the public good.
The idea of deregulation was that government need not regulate private business because greed, corruption, lack of innovation, selfishness, and the other aspects of human nature's darker side would be self-corrected in the market by an "invisible hand," a mechanism whereby markets adjust to imbalances, excesses, and imperfections through the corrective operation of a rational market system.
The invisible hand is in ordinary parlance a fiction. It is a metaphor. In reality, it does not exist for if it did it would not be invisible. It is a human creation; it exists in nature no more than faeries or goblins exist.
The meltdown on Wall Street and throughout the global financial system has killed the notion of laissez-faire capitalism and free markets at the moment. Unrestrained corruption and vice which ruled Wall Street (and Washington) and was championed by conservative ideologues from across the political spectrum have learned this week that we are playing a different game, that the old rules will no longer suffice if we intend to conserve the way of life and the principles on which America was built by its Founding Fathers.
By any honest interpretation of laissez-faire capitalism, free market theory, small government ideology, and deregulatory philosophy, the businesses that have been engaged in greed and corruption ought to be allowed to fail, their corporate officers and representatives tried and, if convicted, imprisoned and fined, and corporate assets sold to reimburse cheated consumers.
The government's response so far has been to bail out (Bear Stearns, Fannie Mae, Freddie Mac), let fail (Lehmans), and bail out (AIG). Inconsistent and not reassuring. The taxpayer funded bail outs have left ordinary Americans with an unpayable bill backed by largely worthless corporate assets. Even the assets that have some sale value will not cover the total bill.
Predatory and criminal practices, according to this ideology, are not rewarded by the capital system: markets can only operate rationally when a good or service is exchanged at a fair cost (i.e. market price).
What we have witnessed instead, is a changing of the rules of the game, to exonerate the guilty, and punish the aggrieved, ignorant, and vulnerable, through the most massive government intervention, led by a Republican administration, in United States history by either political party.
Now in a climate of panic and fear, the Congress is urged to hastily rush through its halls a complex and costly legislative program ill-suited to the function, nature, and purpose of the Congress.
The House of Representatives in our system of government was created to represent the popular interest. In other words, its elected representatives are to propose legislation based on spirited debate that reflects the people's interests, not Wall Street nor Washington special interests.
The US Senate in our system of government was created to give the states an equal voice in the passing of laws. It is supposed to be a purposefully weighty, deliberative, more thoughtful, body than its Capitol counterpart, the House. Through careful deliberation and lengthy debate, the Senate acts to temper the popular passions of the House. It is a body where compromise and wisdom is supposed to mend public opinion with sound policy to fashion legislation in the national interest.
There are three recent examples of legislation passed in a climate of panic and fear: authorization granting the president powers to invade Iraq, the USA Patriot Act, and the Homeland Security Act.
That is worth remembering as the US Congress, the American people, and the economy face very dark days indeed.