From Joe's Vault, 9/21/08: This Is One Time I Sincerely Wish I'd Been Wrong

An Era Of Re-Regulation? Progressives Shouldn't Celebrate Too Soon

Sorry that the links didn't copy. You can find them on the original post.

By Manifesto Joe

So, deregulation in America is supposed to have died last week? Not so fast. Laissez faire, historically, is one of those economic notions that's sort of like Jason in those bad splatter movies -- it keeps coming back.

I don't doubt that, no matter which candidate is elected president in November, deregulation will be a somewhat untouchable position for a while, where financial markets are concerned. Until several years pass, and the $700 billion payoff at taxpayers' expense is complete, we won't hear much about it.

But this is a zombie that's a re-animator's dream, having risen from rigor mortis again and again. It's a toxic idea has always served the interests of the moneyed class in most societies. Even after being repeatedly discredited by financial crises such as this one, and many before, it only takes a generation or two to resurrect it with as much "credibility" as ever.

As a one-time college textbook editor, I worked with economists, and found them to be largely a priesthood of ideologues. Their ideas don't have to bear strong resemblance to events of the real world. Among many, if not most of them, the "free market" is a quasi-religion, to be challenged only at the questioning of one's intellect and/or sanity.

Interestingly, most of them, even the "free-market" disciples, agree that the looming $700 billion taxpayer bailout of the U.S. financial system is necessary, though perhaps a necessary evil.

We come back to a condition of humans never liking to admit they are wrong. We also come back to old wisdom that one shouldn't bite the hand that feeds one. Most professional economists have "invested" a big stake in "free-market" theory, and their sources of income -- universities, "think" tanks and such -- generally expect them to maintain a certain ideological purity.

When current events fade into history, don't be surprised if we have a lot of economists, and compliant lawmakers trolling for right-wing votes, who want to start deregulating everything yet again. To broadly paraphrase the poet Santayana, most people do not remember the past, and they are therefore condemned to repeat it.

I'll steal another line, this one paraphrased from Citizen Kane: You're going to need more than one lesson, and you're going to get more than one lesson. In this case, the "you" is the American people.

What happened during the past 30 years was widespread economic amnesia, even among the alleged experts. What was forgotten was people's natural inclination to grow greedy and behave badly when not subject to certain restraints.

It's easy to blame the people who signed on to unsound subprime mortgage loans, who ran up vast credit-card debt, and so forth, if you look at the situation in just one dimension. What about the predatory lenders who offered them all this credit they could never have gotten 30 years ago?

I remember being quite impressed in the spring of 1978, as I approached graduation from college, at being offered my very first gasoline credit card. It was a big deal. "We believe that people about to graduate from college are good credit risks," I was told. Years later I was offered an actual Visa card, and the line of credit was pretty modest.

Now, all you need is a pulse. My 81-year-old mother, in assisted living, is getting solicitations. It would be possible for her to obtain one of these cards and run up a $10,000 tab in a hurry, then default. What would they do? Ruin her credit? Garnish her Social Security check?

The fault ultimately lies with greedy lenders. The great unwashed are always an easy target for blame, but the people in the suits don't have to make such absurdly generous offers to hapless people. This go-round, they approved loans and gave out other credit like it was lunch, with no thought for when the bills came due and they had to actually collect.

A wonderful analogy came from Kathleen Day, a spokeswoman for the Center for Responsible Lending, a consumer-oriented research group. In a Monday piece from McClatchy Newspapers, she commented on the regulatory lapses:

"The job of regulators is that when the party's in full swing, make sure the partygoers drink responsibly. Instead, they let everyone drink as much as they wanted and then handed them the car keys."

Here's the link to the complete article.

It is important to note that Bush, possibly the Herbert Hoover of this generation and much worse, has nevertheless planted seeds for an eventual revival of the old market mentality. One couldn't expect a mediocre-at-best product of privilege to do otherwise. Here's some of what he had to say, as reported by The Associated Press:

The president favored government intervention even though it opened him up to criticism from financial conservatives who are raising their eyebrows at the pricetag of the bailout plan. "Look, I'm sure there are some of my friends out there saying, `I thought this guy was a market guy. What happened to him?'" Bush said.

"Well, my first instinct wasn't to lay out a huge government plan," he said. "My first instinct was to let the market work until I realized, upon being briefed by the experts, of how significant this problem became."

In other words, this is supposed to be an anomaly, not the logical outcome of unregulated capitalism, even though we've seen it in history over and over. Here's the full AP article about Bush's take on this, if you can stomach it.

It would be desirable in many ways to just let the avaricious fatcats go under amid this excess, but that can't be. There are dogmatic libertarians who actually think Americans could be that stupid, both individually and collectively. But we can't afford that. It comes to a kind of economic blackmail -- the risk is too great for too many people who had nothing to do with the bad decisions on either end of the credit process. So, the fatcats will be bailed out.

The hope, against hope, is that "we won't be fooled again." That they won't be able to sell this bill of goods to the next generation in 20 years, and that our own generations of today won't forget. That the libertarians will finally learn that their naivete assumes marketplace self-policing that neither people nor institutions will ever do.

Maybe, just maybe one day, we'll learn. Keep a close watch on your retirement investments in the meantime. Here's one more thought-provoking link by Steve Fraser that I urge the reader to ponder.

Manifesto Joe Is An Underground Writer Living In Texas.