This election is shaping up to be even more dramatic than expected. The country’s financial crisis accelerated this past week, and the government is poised to bail out Wall Street to the tune of $700 billion or more. It’s one more instance of the greedy making fortunes, running up huge debts, and leaving it to the taxpayers to pick up the tab.
But this time it’s more than just another financial disruption. This time there’s an opportunity for the country to say “enough” to the Republican ideology of virtually unregulated markets that precipitated this crisis, and now threatens American competitiveness and even our solvency.
When Ronald Reagan took power in 1980, there was a case to be made that regulations were too onerous and federal income taxes were too high, e.g., there was too little competition in the airline and trucking industries, and the top marginal tax rate was 70%. Reagan and the Republicans had the solution: cut taxes and do away with regulations. They were themes that resonated with the American people, and the GOP has hammered away at them ever since.
But besides lowering taxes and making some industries more competitive, Reagan became a union buster and a gutter of key environmental and labor laws.
And it’s become ever more clear that the anti-regulation pendulum which he set in motion has swung too far.
For all the talk of complex derivatives and sub-prime mortgages, the root of the current crisis is much simpler: whereas traditional banks are required to hold assets worth 10% of outstanding loans, investment banks were able to hold as little as 2%. When things began to unravel, these firms (Lehman Brothers being the latest example) simply didn’t have the funds to stay afloat. Why aren’t investment banks held to the same capital requirements as traditional banks? It began with the repeal of the Glass-Steagall Act in 1999, engineered by then Senator Phil Gramm of Texas (later to become John McCain’s top economic advisor). And just four years ago, the SEC passed a rule which specifically allowed five investment banks to take on higher debt ratios. Which five? Bear Stearns, Lehman, Merrill Lynch, Morgan Stanley, and Goldman Sachs. Only the last two are still standing, and even they were teetering before the big news on Friday.
America would have economic problems even if investment banks had been required to hold 10%, but nothing approaching the severity of what we’re facing. As a direct result of lax oversight and loose regulation, America could well be headed for a prolonged economic slump and significantly higher unemployment (in addition, of course, to that $700 billion bailout bill).
But (as I always keep in mind) we get the government we deserve. In 2000 and again in 2004, Americans chose a leader they thought was a nice guy; he might not be too sharp, but he shared their values and would be fun to have a beer with. When we don’t choose competence, when we don’t use reason to elect the leader of the free world, this is what we get: a major U.S. city under water, record gas prices, two terribly managed wars, zero response to climate change, and now a financial meltdown.
In a little over six weeks, voters will once again have the chance to change course and say “enough” to the party that has driven America into a huge ditch these past eight years.
They can choose a man whose economic team is comprised of the people who made possible this economic mess, and who freely admits that he doesn’t know much about the economy (along with his culture-war sidekick from Alaska, who proudly doesn’t know much about anything).
Or they can choose probably the most centered and serious politician of a generation, whose campaign has been disciplined, respectful, and focused on the real issues Americans care about.
Hopefully, Americans will make the right choice this time. If not, expect more of the same and no sympathy from me.
Jason Scorse