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Financial crisis bought and paid for

 

One writer posted an emotional comment concerning how he, himself, had been harmed by the economic collapse and mortgage meltdown. Another asked,

 

 

In the first two articles on the near collapse of the United States economy, I relied heavily on a new report issued by the Consumer Education Foundation titled, “Sold Out – How Wall Street and Washington Betrayed America”. This report bluntly and with documentation, asserts that over the past 30 years, financial interests (collectively referred to as “Wall Street”) spent more than $5 billion on influence peddling, $1.7 billion on political contributions and $3.4 billion on lobbying. It was worth every farthing!

The 231 page Report (including a 129 page list of who paid for preferential legislation and/or lax regulation and the persons who received the largesse is must reading. While this monumental failure of the regulators to regulate was a feature of the Republican Bush Administration (see, for example, my article cited below), the “sell out” also was in effect during the Clinton and Reagan eras. The failure of government to protect us from the improper actions of the financial industry was a bi-partisan affair.

If the first parts of the report are arcane, the final sections are comprised of statistics and mind-boggling amounts of money paid by financial firms and investment companies over the past to politicians of both parties and to those representing every part of the political spectrum.

Of the securities companies, the five major firms, Bear Stearns, Goldman Sachs. Lehman Brothers, Merrill Lynch and Morgan Stanley, in the ten years from 1998, spent $62.85 Million on direct campaign contributions and an additional $651.45 Million on lobbying efforts. (And like the figures mentioned below, these are the direct reported expenses.)

The top commercial banks, Bank of America, Citigroup, JP Morgan-Chase, Wachovia and Wells Fargo did not scrimp. During the same ten-year period, they reported spending $56.1 Million on direct campaign contributions and $195.1 Million on lobbyists.

The top hedge funds and accounting firms contributed mightedly. The complete “scorecard” and the names and party affiliations of the recipients are all set forth in the Repotrt’s appendix. It makes frightening (and explanatory) reading. If one wants to get to the reason for the lack of governmental oversight, the absolute failure of regulation, one only has to read the amounts of money that was shoveled out!

It was not just Republicans enjoying the cash; there were just as many Democrats. Some recipients were right wing conservatives, others far-left liberals. George Bush (41 and 43). John Kerry, Ronald Reagan, Arlen Specter, Harry Reid, Rudy Giuliani, Al Gore, John McCain – all of them recipients of vast amounts of cash!

Primarily reflecting the balance of power over the decade, about 55 percent went to Republicans and 45 percent to Democrats. Democrats took just more than half of the financial sector’s 2008 election cycle contributions.

 

The numbers are mind numbing. There are ways to correct the disaster in which we find ourselves; the problem seems to be that the very financial interests that caused the problem seem unwilling to take the steps needed to correct them.

 

The first step is to understand that the Dow-Jones average and Wall Street do not create wealth. They produce paper! We have to stop worrying about whether new regulations will hurt Wall Street profits. The people on Wall Street have destroyed their own institutions, and their earlier profits are now revealed to be only financial sleight-of-hand. The economy cannot be based on finance and the trading of paper. The financial economy did not

increase America’s true wealth, but just the opposite: Wall Street siphoned profits from

the real economy, and from the checking accounts of consumers, workers and investors, until the system collapsed, and consumer, workers and investors were asked to foot the bill.

 

Unusual and “creative” financial instruments need to be curtailed unless and until their real value can be established and validated. Financial derivatives need to be regulated and done so closely. Some should be simply forbidden. Many times, their dreating merely added another way to gamble and they had no intrinsic value.

 

We need to crack down on excessive executive pay and bonuses for failure! One simple way would be to disallow the deductibility of much executive pay and bonuses from the corporate income tax. If a company wants to pay great amounts, let the stockholders know and pay.

 

The Report’s final paragraphs are telling:

 

Is this agenda politically feasible? It has the advantage of being necessary: Recent years' experience shows beyond any reasonable argument that a deregulated and unrestrained financial sector will destroy itself — and threaten the U.S. and global economies in the process.

 

The deregulatory decisions profiled in this report were not made on their merits. At almost very step, public interest advocates and independent-minded regulators and Members of Congress cautioned about the hazards that lay ahead — and they were proven wrong only in underestimating how severe would be the consequences of deregulation.

 

Good arguments could not compete with the combination of political influence and a reckless and fanatical zeal for deregulation. $5 billion buys a lot of friends. In one sense, this report can be considered a case study in the need for the elimination of special interest money from American politics, but Congress will address financial re-regulation this year, and reform of our political process does not appear on the horizon. The emergent consensus on the imperative to re-regulate the financial sector demonstrates that, in the wake of the financial meltdown, the prevailing regulatory paradigm has shifted. Whether the forces that brought America’s economy to the precipice can be forced to accede to that shift — whether the public interest will prevail — remains to be seen.

 

 

Monopoly money?