Update (9/19/08): Given the magnitude of the crisis and the risk of world wide depression the US government was literally forced to rescue the house of cards that is the 'Street of Broken Dreams' or subject its citizens to years of economic pain. It is not the first time nor probably the last but it is the largest private sector rescue in history, and irrefutably demonstrates that Wall
Street is congenitally incapable of self-regulation. The decision to buy up almost worthless mortgage backed securities to provide relief to tottering financial institutions is similar to the liquidation of failing savings and loans in the 1980s by the Resolution Trust Corporation. That bailout of failing S&Ls cost taxpayers $125 billion. Government spokesmen of course claimed that they expect the US Treasury to be paid back, but do not bet on it. The bailout will cost billions if not trillions of dollars, and taxpayers will pay the bill. What I find irksome is that the bailout rewards Wall Street's voracious greed, and imprudent behavior by consumers trying to slice themselves a piece of the wealth pie. Assuming the enormous obligations means less money will be available for social programs like national health insurance that ordinary Americans want. Federal help must come with regulation of the derivatives markets and hedge funds, renewal of restrictions on banking activities and investments, and new stock market speculation controls. 'Deregulator' McBush's suggestion that firing the SEC chairman as a solution is simplistic non-sense. The twenty-five years of deregulation that he, Phil Gramm and other Reagan conservatives championed is what allowed this crisis to occur. Not reimposing controls over financial markets will only cause us to repeat this nightmare in another twenty-five years. So the next time some free market aficionado starts talking about the "miracle of the market" just laugh in his face and walk away.
Street is congenitally incapable of self-regulation. The decision to buy up almost worthless mortgage backed securities to provide relief to tottering financial institutions is similar to the liquidation of failing savings and loans in the 1980s by the Resolution Trust Corporation. That bailout of failing S&Ls cost taxpayers $125 billion. Government spokesmen of course claimed that they expect the US Treasury to be paid back, but do not bet on it. The bailout will cost billions if not trillions of dollars, and taxpayers will pay the bill. What I find irksome is that the bailout rewards Wall Street's voracious greed, and imprudent behavior by consumers trying to slice themselves a piece of the wealth pie. Assuming the enormous obligations means less money will be available for social programs like national health insurance that ordinary Americans want. Federal help must come with regulation of the derivatives markets and hedge funds, renewal of restrictions on banking activities and investments, and new stock market speculation controls. 'Deregulator' McBush's suggestion that firing the SEC chairman as a solution is simplistic non-sense. The twenty-five years of deregulation that he, Phil Gramm and other Reagan conservatives championed is what allowed this crisis to occur. Not reimposing controls over financial markets will only cause us to repeat this nightmare in another twenty-five years. So the next time some free market aficionado starts talking about the "miracle of the market" just laugh in his face and walk away.