Over the last decade our government has essentially "de-supervised' America's financial sector and turned it over to the perpetrators of one of the largest swindles in history. This swindle originated with the securitization of tens of thousands of fraud-based mortgages, i.e. near-worthless mortgages that were fraudulently bundled together and (thanks to government deregulation and no supervision) sold, criminally.

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MSNBC's Dylan Ratigan and economist James Galbraith try to answer that question in the following account of their recent conversation on MSNBC.

As we all know by now, big banks and corporations are making out like bandits, taking all the "upside," as Dylan Ratigan likes to say, while sticking it to the American taxpayers who have been burdened with the "downside." Lately, the 'upside' for the banksters and corporate honchos who control our government has been real good. Treasury chief Tim Geithner says the bailout will prove to be a "good investment" for American taxpayers. Ratigan agrees with this assessment by Tim Geithner if by "taxpayers" he, Geithner, is referring to the banksters et. al. -- after all they pay taxes too (though many big corporations don't).

For the big banks the bailout has been a fantastic investment (of taxpayer money). Why? Because they, the big banks, pulled in $21.6 billion in just the past 3 months, their biggest quarterly haul in the last 3 years, most of it thanks to contributions from US taxpayers. And considering the $1.6 billion in salaries and bonuses received by their CEOs last year, they have very little reason to complain.

Problem is, 30 million of those US taxpayers are now either out of work or underemployed at jobs that pay only a fraction of what they were earning two years ago. In constant dollars, the median wage for men is now lower than it was in 1975 -- only in America, where worker productivity and corporate profits have soared for more than 3 decades while wages have for the most part stagnated.

Why so many jobless and underemployed in America? One clue is that US corporations are now hoarding all their cash instead of investing it. How much cash? More than $1.6 trillion. (Click here for source article.)

Instead of . .

(a) putting that cash in banks (or creating banks of their own, like GMAC), so that banks can loan it to small and/or new businesses (as North Dakota's state bank has been doing, regularly) -- and . .

(b) paying their employees enough so that they can make the purchases that would sustain such small businesses, . .

. . banksters and corpsters prefer to gamble their corporate billions in our Wall Street credit casinos, or invest it in Asia where all the new factories and offices have been built in recent years and where most all our jobs have gone, thanks to corporate-friendly trade policies that allow US corporations to build products in Asia using dirt-cheap labor and then bring these products into the US, to sell them, without paying any tariff, thereby severely undercutting wages in America. American workers have even been conned into paying the costs of moving their factories, equipment and jobs from America to Asia! Corporations simply deduct the moving costs as a business expense, and the rest of America's taxpayers essentially pay it for them.

Therefore, what is often called "free trade" is nothing more than wage arbitrage. In a nutshell, here's how it works: US companies simply move a manufacturing operation to a low-wage country, manufacture the product there using ultra cheap labor, with no regulations or environmental concerns, and then ship the product to the US for consumption, paying no tariff or tax on that shipment into our country. Up to 60% of our imports come from this kind of operation. This is what has cost our country so many jobs, yet "Repuglican" toadies scream bloody murder at the first hint that the US corporations, who do this, might in any way be taxed for doing it. And the spineless Obama administration immediately caves in.

But consider this: From a purely business and profits point of view, why on earth would America's biggest banks and corporations make any of their money available for loans to new and small businesses in the USA when they can "earn" so much more with that money by either building new factories in China or using it to gamble on derivatives and stocks in the great Wall Street casino? (Using special lightning fast computer programs, traders at companies like Goldman Sachs can sneak in ahead of other traders to almost always ensure a win.)

Galbraith continues:

Over the last decade our government has essentially "de-supervised" America's financial sector and more or less turned it over to the perpetrators of one of the largest swindles in history. This swindle originated with the securitization of tens of thousands of fraud-based mortgages, i.e. near-worthless mortgages that were fraudulently bundled together and (thanks to government deregulation and no supervision) sold, criminally, to unsuspecting investors all over the world, thereby leading to the near collapse of the world's financial system when banks lost all trust in each other. Banks would ask of each other: "Who has what amount of toxic securities on their books, falsely claiming this junk as assets?", which ultimately resulted in the disappearance of credit (i.e. the ability of businesses to borrow money to make a payroll or buy supplies or equipment).

So, as a result of this unprecedented fraud and swindle, we still do not have a financial system that adequately serves the public purposes for which banks are chartered -- purposes like supporting small businesses and the investment projects of large businesses, so as to provide the jobs people need. And until we are somehow able to re-create a properly functioning financial system that can again assume these traditional responsibilities, we're not going to be able to solve some of the major economic problems that bedevil us, including the budget deficits that Republican worry about so much.

Ratigan: Would you agree that the biggest lie or misunderstanding that dominates the leadership of both the Democrat and Republican parties is one which they hide behind so that they don't have to deal with the development of new economic policies that would end the ongoing extraction of resources and wealth from the middle class?

Galbraith: First of all, we have to somehow get rid of the notion that what is good for the big banks is good for America. We now have a set of institutions which, for lack of proper regulation, went wildly out of control, and which desperately need to have competent and active supervision of a kind that was present for a good many years prior to, say, 1980, which is why we had stable economic growth and a thriving middle class for all those years.

Our industrial structure is now being managed more for the sake of financial maneuvering by stock market casino player-speculators than for the long term success of American business enterprises. Look at Germany for an example of how such financial maneuvering has been banned, so that money and effort can be properly invested, for the good of the country and all its people. Germany has the highest labor costs in the world, yet they also have the largest per-capita export sector in the world. And, aside from having banned financial maneuvering, here's the rest of the explanation: Their business enterprises are on average much smaller than our megacorporations, plus Germany has the benefit of much better educated and better trained workers than ours. There is no shortage of qualified engineers and extremely capable technicians in Germany, plus they have much stronger and more prevalent unions -- so strong and so prevalent, in fact, that they have managed, with the help of a very progressive and very democratic government, to see to it that half the number of people on each board of directors must be non-executive employees at the company, often from the factory floor.

In addition, when the worldwide recession threatened to impinge on Germany (by a reduction of demand for Germany's export goods), German companies simply reduced the hours of almost every employee -- but did not reduce their salaries. And from where did the extra money come to keep salaries constant in spite of the reduced hours? The German government chipped in, to make up the difference. That way, worker spending did not much decline and potential layoffs at other companies, for lack of consumer spending, were forestalled.

Ratigan: When you look at the actual policies the US has with China (e.g. severely inadequate tariffs on goods imported from China), and also consider our nation's great accommodation to our overpowering banking system, you realize that these are not policies that encourage a successful domestic manufacturing operation like Germany's. So what is the key lie or prevarication that our government and society is hiding behind as they facilitate the gambling operations of our biggest financial institutions, at the cost of not being able to help new business enterprise?

Galbraith: The key lie is the die-hard Republican claim that you can successfully run any kind of successful economy without a robust and effective supervisory and regulatory system. A country that is as successful as Germany must set up a framework within which private enterprise can best function and prosper, and within which a corporation that invests its resources with a long-term perspective does not have to worry about a hostile takeover because their profits weren't big enough in any given quarter or year.

The economics profession in the US has been deeply culpable, and complicit, in spreading the erroneous idea that our economic system could function best without reliable and vigilant regulatory oversight and authority -- a fantasy that has long been nurtured by our country's right wing. The result of this hands-off, "laissez faire" policy was a market meltdown stemming from the fact that markets and banks could no longer be trusted. The crooks then took over, and honest businesses and banks were driven to the wall. This is what happens when you don't have an efficient and effective legal and regulatory system, because too many members of Congress have been bought off by corporations and the rich.

Has our Congress taken adequate steps to implement this kind of a legal and regulatory system? No. Are we therefore vulnerable to the possibility of having another financial meltdown? Yes.

(Why? One reason is that the big banking reform bill was essentially hogtied and compromised by Chris Dodd, Chairman of the Senate Banking Committee. Why did he do this? Word has it that Chris is angling for a million-dollar-a-year lobbying job working for the banksters after he soon retires as a Senator. Another reason is that Obama and the Congress were afraid to appoint Elizabeth Warren as director of the Consumer Financial Protection Bureau. Instead, Warren was named "assistant to the president and special advisor to Treasury Secretary Timothy Geithner. Had she been named its first director, she would need Senate confirmation, which would've been very difficult, given the obstinacy of already-bought-and-paid-for Republicans and Blue Dog Democrats. Instead, she was named as "special advisor" to a man who was afraid to see her appointed as the bureau's director. Why afraid? His main job is to protect the financial interests of the banksters!)

Authors Bio:

Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've always been more interested in political economics and what's going on behind the scenes in politics, than in mechanical engineering, and because of that I've rarely worked more than 8 months a year, devoting much of the rest of the year to reading and writing about that which interests me most.