By Nancy Jane Moore
Has anybody else noticed that three major financial crises -- ones brought on by excess, greed, and, most importantly, insufficient oversight -- came during Republican administrations?
I'm speaking of the Great Depression, the savings and loan crash of the 1980s, and the current mess, which, according to what Kevin Phillips said on Bill Moyers Journal last night, might be worse than the Depression. (I'm paraphrasing from vague memory -- Phillips' pessimism scared me so much that I couldn't stand to watch and switched to a DVD of Battlestar Gallactica instead of listening to him as I should have.)
These three crises happened after years of administrations that opposed regulation, took steps to deregulate institutions that cry out for regulation, and appointed people as regulators who oppose the whole idea of oversight.
I know there have been other crises in recent times, but most of the others strike me more as the usual ups and downs of a market-based economy. These three, though, came about because the administrations did what they could to block regulation, allowing as so-called unfettered market.
As near as I can tell, all an unfettered market does is allow people to make money doing things that provide nothing to the economy as a whole -- such as creating hedge funds and other financial instruments most ordinary people can't comprehend -- and to get insanely rich, until the whole thing crashes, at which point we the taxpayers bail them out so that our economy doesn't go down with them.
The Depression came about after the corrupt years of Harding following by Silent Cal Coolidge and Herbert Hoover, neither of whom did anything to get in the way of their money-making pals. It took a long time to rebuild after that, but rebuild we did, with increased regulation and protection for ordinary citizens. There were ups and downs after that, but on the whole, the economy did pretty well.
And then Reagan came along with his deregulation ideas, which were followed by the crash of the high-flying, over-extended, deregulated savings and loans. As crashes go, this one may seem like a blip, except that it so exactly presaged what we're seeing now.
At least I understood what happened with the savings and loans. I don't really comprehend the financial side of how the investment banks got into all this trouble -- and I actually do know something about real estate financing. The most obvious thing to me -- especially given that the ratings organizations continued to rate investments in and by these firms at the highest levels -- is that everybody took care of everybody else and nobody paid attention to the fact that housing prices couldn't go up forever.
I'm currently reading Naomi Klein's The Shock Doctrine, in which she explains Milton Friedman and his argument for completely free markets, and points out how "shocks" -- both economic and political -- paved the way for other countries to try his methods. By rights, here in the land of Friedman, we shouldn't bail these companies out, but just let them fail and our economy with them. Supposedly our society would end up better off, never mind how many of us might suffer.
Of course, even Republicans don't do that. With luck, along with this massive bailout we'll get some revived and even improved regulation.
Though as Klein warns us, don't think you've seen the death knell of the "free market uber alles" argument. It'll be back as soon as we get things put back together and it could screw up the other things we need to deal with, like climate change for example.
Given the depth of the crisis, many of us may not live to see the next round.
Here's another suggestion for something we can do -- besides voting Democratic this time and making sure Congress actually passes some meaty regulatory schemes: Lobby the high schools to teach economics. Make it a required course, just like civics and history. Given the complexities of modern finance, everyone needs at least a basic grounding in how economic systems work.
Used to be everyone needed to know how to raise food, build houses, cook, and sew. These days, what everyone really needs to know is how to manage their own money -- and how to control those who manage vast amounts of it.