If It’s Not Dead on Arrival, Someone Should Shoot It Quick: Paulson’s Fixit Plan for Wall Street
By MIKE WHITNEY
It is being billed as a “massive shakeup of US financial market regulation”, but don’t be deceived. Treasury Secretary Henry Paulson’s proposals for broad market reform are neither “timely” nor “thoughtful” (Reuters) In fact, its all just more of the same free market “we can police ourselves” mumbo jumbo that got us into this mess in the first place. The real objective of Paulson’s so called reforms is to decapitate the SEC and increase the powers of the Federal Reserve. Same wine, different bottle. Paulson’s motive is to preempt any regulatory sledgehammer that might descend on the entire financial industry following the 2008 election. There’s growing fear that an incoming Democrat may tote a firehose down to Wall Street.
If Paulson’s plan is approved in its present form, Congress will have even less control over the financial system than it does now and the same group of self-serving banking mandarins who created the biggest equity bubble in history will be able to administer the markets however they choose without the inconvenience of government supervision. That’s exactly what Wall Street, the Treasury Secretary and the folk at the Fed want; unlimited power with no accountability.
Paulson is expected to lay out guidelines and principles that are intended to help regulators supervise the financial markets. According to AFP:
“The President’s Working Group on Financial Markets said the current regulatory structure is working well despite calls by some US lawmakers.”
In other words, the failing banking system, the housing meltdown, and the frozen corporate bond market are all signs of a robust financial system? This may be the most ludicrous statement since “Mission accomplished”. The system is imploding and people are being hurt by the fallout. Thirty years of industry-led lobbying has dismantled the (admittedly frail ad porous) regulatory regime which made US financial markets the envy of the world. Whatever credibility and transparency once existed were washed out in the Clinton era, as with Glass-Steagall and government oversight of the explosive growth of over-the counter derivatives instruments. Now the system is prey to all types of dodgy debt instruments, suspicious “dark pool” trading and off-balance sheets operations which further reinforce the belief that cautious investment is no better than casino gambling.
“The regulatory line of sight today is by the counterparties,” the official said, adding that the guidelines should be “beneficial to industry.” (AFP)
How is that different than saying, “Caveat emptor”? That’s not a motto that inspires confidence. Many people still naively believe that planning their retirement should not have to be a Darwinian tussle with a crafty junk-bond salesman.
Under Paulson’s plan, the Federal Reserve will be granted new regulatory powers, but whatever for? The Fed doesn’t use the powers it has now. No one stopped the Fed from intervening in the mortgage lending fiasco, or the ratings agency abuses or the off-balance sheets shenanigans. They had the authority and they should have used it. The folks at the Fed knew everything that was going on—including the mushrooming sales of derivatives contracts which soared from under $1 trillion in 2000 to over $500 trillion in 2006—but they decided to cheerlead from the sidelines rather than do their jobs. The fact is, they were worried that if they got involved they might upset the gravy-train of profits that was enriching their bankster friends.
Former Fed chief Greenspan used to croon like a smitten teenager every time he was asked about subprime loans or adjustable rate mortgages. And, as New York Times columnist Floyd Norris points out, (Greenspan) “praised the growth in the derivatives market as a boon for market stability, and resisted calls to use the Fed’s power to increase regulation.” Of course, he did. It was all part of Maestro’s “New Economy”; trickle-down Elysium, where the endless flow of low interest credit merged with financial innovation to create a Reaganesque El Dorado. There are no regulations in this version of Eden, not even “Don’t bite the apple”. Anything goes and to heck with the public, they can fend for themselves.
Now its Paulson’s job to keep the neoliberal flame lit long enough to make sure that government busybodies and bureaucratic do-goodies don’t upset the cart. That means concocting a wacky public relations campaign to convince the public that Wall Street is not just a pirate’s cove of land-sharks and bunko artists, but a trusted ally in maintaining a strong economy through vital and efficient markets.
Read all of it here.