The need to regulate free market activities
We impose rules and regulations on our children to instill responsible behavior on their part. Unless we also have regulations that place reasonable limits on the right of free enterprise, unscrupulous managers will abuse that right to the detriment of the economy and our society. A brief history of the excesses of the Wall Street financial industry will prove the point.Virtually unregulated free enterprise was the law of the land throughout the 19th century and well into the 20th century, with periodic financial “panics” culminating in the Great Depression, in which the economy was mired in the 1930s. Widespread bank failures brought on by unregulated banks recklessly gambling in the red-hot stock market wiped out the savings of millions of families.To prevent a recurrence of that financial disaster, in 1933-34 Congress passed the Glass-Steagall Act prohibiting savings banks from engaging in investment banking activities, created the Securities and Exchange Commission (SEC) to regulate trading activities, and created the Federal Deposit Insurance Corp. (FDIC) to protect people’s bank deposits in case of bank failure.These safeguards served the economy and the American people very well until 1999, when under pressure from the finance industry, which claimed the prohibitions of Glass-Steagall were overly-restrictive and bad for business, Congress was conned into repealing it. With regulation now thrown to the winds, Wall Street rushed to create high-risk, lucrative gambles that generated enormous profits for the insiders, totally ignoring the likelihood of failure. U.S. Sen. Byron Dorgan, D-S.D., warned Congress that this would result in a financial disaster. Who were the chief instigators of these get-richer quick schemes, who pocketed multi-millions of dollars while the economy tanked and took the jobs, life savings and homes of millions of American families? A couple of them – Robert Rubin and Henry Paulson – both of whom had been top executives at Goldman-Sachs, left that company to become secretary of the Treasury.Robert Rubin, treasury secretary under President Clinton, was in the forefront of the effort to convince Congress to repeal Glass-Steagall. And while he held that position, an inside job that was politically engineered by Wall Street and Washington created an illegal merger of two financial giants, Travelers Group and Citicorp, to form an even bigger financial giant, Citigroup. Conveniently, the regulations provided a two-year grace period to resolve the illegality. That problem was neatly solved by getting Congress to change the law to get rid of the provision that made the merger illegal. Secretary Rubin then resigned to become a director and senior counselor of the new Citigroup, a move that enriched him by $126 million.Henry Paulson left Goldman-Sachs as CEO after 32 years with the company to become Secretary of the Treasury under George W. Bush, and is remembered for being grossly optimistic about the state of the economy right up until its crash. He managed to get the giant financial firms (including Goldman-Sachs, of course) their taxpayer-funded hundreds of billions of dollar bailouts – read that “entitlements.” Their game was “heads we win” mega-millions of dollars from their skin-games (Goldman-Sachs employees were caught joking about the clients they were fleecing), and “tails you lose” because we are “too big to fail” and are therefore entitled to all those billions of taxpayers’ dollars.If these financial giants are too big to fail, they need to be broken up, as Teddy Roosevelt did to monopolistic trusts in the early 1900s, the Supreme Court did to Standard Oil in 1911, and the Justice Department did to AT&T in 1984.So, in an attempt to eliminate these self-serving abuses by the financial industry, in 2010 Congress passed the Dodd-Frank Act, reimposing a degree of separation between savings bank and investment bank activities. But due to lobbying pressure from the big banks and all that goes with that, the final measure was pretty well watered down. And now the banking industry is trying to further weaken the law to allow it to get back to business as usual. It is like deja-vu, all over again – and again. As imperfect as government may be, it is essential to regulate human behavior. Mankind, without a common authority, will become predatory. However, when the government is taken over by the very factions it should be regulating, it becomes a tool for the exploitation of the many by the few, which has been happening in this country. If we the people do not have the will to take our government back from the plutocrats who have gained control of it, we deserve the consequences. – “As I See It” appears on the first and third Thursdays of the month. Hal Sundin lives in Glenwood Springs and is a retired environmental and structural engineer. Contact him at firstname.lastname@example.org.
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