I’ve had a lot to say here, none of it good, about the banksters and their fraud, which is the primary reason why our economy is in the toilet and not getting out any time soon. But the banksters didn’t do this on their own; indeed, they couldn’t have. They needed inside help.
And they got it, in the form of “anti-regulation.” That is the term preferred, if not coined, by Bill Black, a former savings-and-loan regulator and former executive director of the Institute for Fraud Prevention, a nonprofit that works to prevent fraud and corruption in business and government and to educate people on how to recognize and prevent fraud. Black now is an associate professor of economics and law at the University of Missouri at Kansas City. I’ll get back to him in a minute, but first, some background.
For a long time, Republicans and conservative Democrats have claimed to oppose “excessive” regulation for a number of reasons. Excessive regulation is antithetical to the very concepts of a free society and free enterprise. Excessive regulation hurts profits. Excessive regulation slows or prevents job creation. And, indeed, there is some truth to all of these claims. Some.
Of course, politicians, being politicians, have never defined “excessive,” let alone consistently imposed regulation rationally based on a balance between societal goods (e.g., worker safety, balance of information between seller and buyer, etc.) and the desire of capital to seek as high a return as possible.
But they did find their way to a balance of sorts in some areas, notably financial regulation. As a result, we went from the Depression to the S&L crisis — about half a century – without any major systemic problems in the banking industry.
But the conservative opposition to government regulation, aided by political contributions to politicians of both parties, picked up speed when the GOP took over the executive branch and Senate in the early 1980s. The savings-and-loan industry, which couldn’t compete with banks that were offering much higher interest rates during the days of 11% inflation, sought and won deregulation. (I would be remiss if I didn’t point out the role of Democrat Rep. Fernand St. Germain of Rhode Island, whose annual bar/restaurant tab, paid by the S&L industry, approached median U.S. household income at the time, in getting the bill through the House.)
And within a few years, whaddaya know, we’ve got a crisis on our hands — a crisis driven almost entirely by fraud and the most expensive banking screwup in U.S. history. Indeed, it was made far worse for taxpayers than it needed to be when Congress defeated a measure by Rep. Guy LaFalce of New York that would have dealt with the whole bloody business at once for about $40 billion — an astronomical figure, at the time, to be sure — rather than dragging it out for years and making it more expensive in the process. Howard Coble, then and now my congressman, voted against the LaFalce amendment, then told me years later he wished he could have that vote back.
The biggest difference between then and now was that then, people went to prison. Not everyone who needed to, of course — no major government officials, mainly some small-town bankers — but a lot of people did. (One who didn’t was Neil Bush, son of George H.W. and brother of George W., who helped run a Colorado S&L into the ground.)
Rather than learn from that experience, however –
Wait. I was about to write something there based on the presumtion that everyone involved has the public good at heart, “public good” being defined as running a secure banking system at minimal cost to taxpayers. However, as I have observed before, not only is there little basis for any such presumption about the primacy of the public good in the hearts of our government officials anymore, there is considerable evidence that the opposite is the case. Certain people in government decided that if a little deregulation could help their friends and political supporters steal a lot, then a LOT of deregulation could help their friends and political supporters steal a monumental amount. And that, my friends, is where we find ourselves today.
And you know what? They’re not done. Conservatives and pro-corporate Democrats used to say they opposed excessive regulation. Now, in the face of all that has been stolen in the past 30 years, they’re saying they oppose regulation, period, and they’re claiming it kills jobs. This is where Bill Black comes (back) in: He says, in so many words, that the anti-regulators are the job-killers, that they’re killing jobs by the millions. And whaddaya know, he’s right:
The Great Recession (which officially began in the third quarter of 2007) shows why the anti-regulators are the premier job killers in America. Annual private sector gross job losses rose from roughly 12.5 to a peak of 16 million and gross private sector job gains fell from approximately 13 to 10 million. As late as March 2010, after the official end of the Great Recession, the annualized net job loss in the private sector was approximately three million (that job loss has now turned around, but the increases are far too small).
Again, we need net gains of roughly 1.5 million jobs to accommodate new workers, so the total net job losses plus the loss of essential job growth was well over 10 million during the Great Recession. These numbers, again, do not include the large job losses of state and local government workers, the dramatic rise in underemployment, the sharp rise in far longer-term unemployment, and the salary/wage (and job satisfaction) losses that many workers had to take to find a new, typically inferior, job after they lost their job. It also ignores the rise in poverty, particularly the scandalous increase in children living in poverty.
The Great Recession was triggered by the collapse of the real estate bubble epidemic of mortgage fraud by lenders that hyper-inflated that bubble. That epidemic could not have happened without the appointment of anti-regulators to key leadership positions. The epidemic of mortgage fraud was centered on loans that the lending industry (behind closed doors) referred to as “liar’s” loans — so any regulatory leader who was not an anti-regulatory ideologue would (as we did in the early 1990s during the first wave of liar’s loans in California) have ordered banks not to make these pervasively fraudulent loans.
One of the problems was the existence of a “regulatory black hole” — most of the nonprime loans were made by lenders not regulated by the federal government. That black hole, however, conceals two broader federal anti-regulatory problems. The federal regulators actively made the black hole more severe by preempting state efforts to protect the public from predatory and fraudulent loans. Greenspan and Bernanke are particularly culpable. In addition to joining the jihad state regulation, the Fed had unique federal regulatory authority under HOEPA (enacted in 1994) to fill the black hole and regulate any housing lender (authority that Bernanke finally used, after liar’s loans had ended, in response to Congressional criticism). The Fed also had direct evidence of the frauds and abuses in nonprime lending because Congress mandated that the Fed hold hearings on predatory lending.
The S&L debacle, the Enron era frauds, and the current crisis were all driven by accounting control fraud. The three “des” [which he defines earlier in the piece as deregulation, desupervision, and de facto decriminalization -- Lex] are critical factors in creating the criminogenic environments that drive these epidemics of accounting control fraud. The regulators are the “cops on the beat” when it comes to stopping accounting control fraud. If they are made ineffective by the three “des” then cheaters gain a competitive advantage over honest firms. This makes markets perverse and causes recurrent crises.
A rational politics and a rational culture would try to move us back in the direction of balance between governmental constraints on banking and the desire of bank holders of capital to make a profit. Instead, even as we remain mired in unemployment levels that would have gotten Gerald Ford impeached, everyone sort of acts as if there’s no crisis going on, no criminals among us who need punishing and, worst of all, reason to consider even more deregulation of the finance industry.
No. We have amassed far too much evidence during the past 30 years for any politician now to be allowed to claim ignorance of the deleterious effects on the economy of unbridled deregulation. By now, any politician who isn’t arguing that the finance industry needs to be brutally re-regulated can logically be assumed to be an accessory to the crime. That’s you, Barack Obama. That’s you, Richard Burr and Kay Hagan. That’s you, Howard Coble and Virginia Fox and Mel Watt. (Among our area congresscritters, only Brad Miller seems to be making any effort, and I’m far from convinced that he’s doing all he could and should.)
They’ve come after our 401Ks. They’ve come after our home equity. And now they’re coming after our Social Security and Medicare. And I don’t see a soul on the horizon with the will and means to stop them.
James Kunstler has an interesting hypothesis about why:
The larger riddle of life-in-our-time surrounds the absence of the rule of law in money matters. To say that people are actually running things out there doesn’t mean that are running them effectively or optimally. The US Department of Justice, for example, appears to be led by a zombie, Attorney-General Eric Holder, somebody of this world but no longer quite in it, who is pioneering a new method of Zen law enforcement based on a maximum of doing and saying of nothing. Of course, my ongoing theory since the national election of 2008 is that Barack Obama has been warned repeatedly by many credible figures that any move to disturb the operations of banking would bring down such a wrathful ruin on this nation that he had no choice but to keep his hands off the levers of enforcement. In fact, it’s the only theory that explains adequately the yawning gap between reality and the representation of it by those assumed to hold authority.
The criminals behind our current mess are hiding in plain sight. It’s not, as Kunstler observes, some shadowy bunch of Freemasons or what-have-you. It’s people you see on the news every night.
Now it’s possible that Obama and Holder aren’t prosecuting this mess because they’re in on it — that is to say, not as accessories but as direct beneficiaries. I think that likely will become true of each man as soon as he leaves office, but I do not believe it to be true currently because I see no evidence of that.
But I also believe we may be approaching the situation best described by Arthur Conan Doyle: ”When you have eliminated the impossible, whatever remains, however improbable, must be the truth.”