The new Wall Street reform bill is gradually making its way through the halls of Congress. It met stiff Republican opposition at first, but through the gradual and often beautiful method of compromise, it appears to be marching forward. In the end, after months of deliberation, it will be passed, and America’s economic woes will be gone forever.
Psych.
I’m not saying that members of Congress or any citizens actually believe that. The bill itself acknowledges there will be economic problems to come. The bill will allow the federal government to step in and dismantle large firms if it feels they are on the brink of ruin and threaten the U.S. economy as a whole. About $50 billion is earmarked for such an event. I find myself wondering at the point.
The Great Depression occurred for a variety of reasons; although, one of the biggest factors was the use of “levering” by stock brokers that allowed people to buy large amounts of stock and take huge risks through loans provided by the stock brokers. People expected stocks to continually rise, but when they began to fall, stock brokers called in their loans. People sold their stock to repay those loans, which caused the stock price to fall even further. People were not able to pay the loans off to brokers, and this was one of the factors that led to the crash.
At least it was a learning experience. Never again will individuals or corporations make risky loans to people who probably won’t be able to pay them off.
Or not.
It’s almost laughable how similar the whole notion of “mortgage-backed securities” is to the idea of leverage. Risky loans were made to people who had little hope of repaying them. These mortgages were bundled and sold to various companies. When the people were unable to pay their mortgage, they defaulted, and the companies who had bought the mortgage securities suffered. The companies that bought these securities were quite large, and this resulted in the recession and fear of a larger systemic collapse because these companies were so intertwined with the economy. Will we ever learn?
I think the answer to that has been proved time and again to be “no.” Our economic system is set up to reward people who take risks, even if they are ill-advised. Loopholes in financial regulation are there to be used, abused, and sucked dry until the economy is on the verge of collapse. I can think of no better analogy for people, such as Robert Madoff, and corporations, such as Goldman Sachs, than that of a virus, seeking to exploit a host for all it’s worth until the entity it has infected perishes. I don’t believe that the Madoffs of the world are byproducts of capitalism, but rather, they are an anomaly produced by humanity. It becomes not so much important to regulate capitalism, but to change the way it works.
Does this mean we shouldn’t even bother with Wall Street reform? No. Just because children continue to misbehave does not mean you cease to punish them. But I think that, like a misbehaving child, there are deeper problems under the surface that need addressing. The whole notion of constantly looking for loopholes in the system to make a quick buck is rather sickening. Capitalism is driven off of competition and individuals acting in their own self-interest. But the manner in which these corporations (and individuals) sought to manipulate and steal from Americans goes in the wrong direction of self-interest. At some point, as the recession showed, people are simply unable to take any more exploitation. When that happens, they cease to be able to pay. When they can’t pay, corporations lose. And when corporations lose, the economy collapses.
What the U.S. needs is an intervention.
The whole notion of “too big to fail” is about as anti-capitalist as it gets. When you start protecting companies that should go under through their own faults, you are removing the invisible hand. I understand they had to be saved, but what reform really needs to do is make sure no company is ever too big to fail. And it has to make risky lending unattractive. The Wall Street reform bill seeks to break up companies once they become too large, but why not stop them from growing so big in the first place? You don’t have to make it illegal, but you can set up incentives for vertical growth, such as tax breaks for companies that operate within strict bounds. You can do this with lending, too. Set up incentives for corporations who lend the right way, with sound approaches and valid borrowers.
Wall Street reform needs to speak to the corporate world in the one language they understand: money. Just like you give a child a treat for good behavior, corporations should be given tax treats for good ethics. Maybe once that has been accomplished, we will see corporations acting in their own self-interest: the stabilization of the entire economic   system.
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