Friday, March 21, 2008

Deregulation and Trickle Down Economics Is a Colossal Faillure

The economic policies of the last twenty-five years or so have been a mistake based on illusions supported by lies and profitable for some through fraud. We forget too easily the problems of the 1970s and the fact that Americans did reasonably well in the 1980s because most households were earning two incomes out of economic necessity.

Paul Krugman has been watching the stumbling antics of the Bush administration for some years now. He made some predictions a few years back that weren't entirely accurate only because nearly everybody underestimated the desire of countries like China to find a place to park their new wealth. But Krugman was more right than wrong. The Republicans in Washington have done a poor job of minding the store. Largely through luck, we've been the beneficiary of a banking system that until recently was famous for its integrity. Because of a reckless level of deregulation and lack of oversight, that integrity is increasingly suspect.

Anyway, here's part of what Paul Krugman had to say today:
Contrary to popular belief, the stock market crash of 1929 wasn’t the defining moment of the Great Depression. What turned an ordinary recession into a civilization-threatening slump was the wave of bank runs that swept across America in 1930 and 1931.

This banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure.

As the decades passed, however, that lesson was forgotten — and now we’re relearning it, the hard way.


[For the last number of years,] Wall Street chafed at regulations that limited risk, but also limited potential profits. And little by little it wriggled free — partly by persuading politicians to relax the rules, but mainly by creating a “shadow banking system” that relied on complex financial arrangements to bypass regulations designed to ensure that banking was safe.

It's unforgiveable that Wall Street allowed financial instruments to circulate that were given high credit ratings when those instruments were just as bad as the old junk bonds scams of the 1980s and certainly no better than the phony accounting audits and the high credit ratings that got Enron in trouble when its board of directors was a bit too pleased with 'creative' solutions to the company's extravagent spending and careless financial controls.

****I wish I had time to comment on the current political season. Whoever wins the Democratic nomination is clearly going to have to work to unite the party. As for McCain, maybe it's time for him to start thinking about a hobby to keep him occupied. He's no longer presidential material.