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The advance of regulation for the financial industry is being overshadowed by the drama of the health care debate. Naturally, the financial industry’s lobbyists are taking full advantage of the public’s inattention. Present proposals to keep our financial industry from being regulated feature that dread threat, loss of jobs. Who will suffer this new unemployment crisis? The derivatives speculators, and their profit takers.
If a tear did not streak your cheeks at this prospect, you may well be realizing that real jobs in a real economy are being swapped for speculators’ jobs in this attempt to waylay the sympathies of Congress when it considers badly needed regulations.
A fight to keep the present, taxpayer supported system deprived of regulations that provide transparency to all potential investors and regulators is now going on almost unnoticed. The term being used to fight against taxpayers’ interests? "End users." In lobbyists’ arguments in Senate Finance Committee hearings, the battle rages against imposition of requirements to divulge what is involved in those toxic assets we so recently and regrettably became intimately familiar with.
The argument raised is that if we taxpayers know and supervise their composition, the toxic assets can’t be sold at sufficient profit. Without that profit, industry that relies on toxic asset sales to finance its operations will contract, and have to rein in its innovative spirits.
Exactly. The public will be served, and industry will be required to base its operations on sound finances. The tragedians in their testimony are leaving out the real economy, and waxing desperate over their clients, the bubble profiteers.
Excellent oversight of the protested reining in of financial speculation was provided to the Senate by Reforming Market Regulation, by the Roosevelt Institute New Deal’s director of economic policy, Rob Johnson. He rightly insisted that the employment picture will be damaged, not improved, by the lack of regulation the financial houses are fighting for. (Emphasis added.)
We have a financial architecture in place governing derivatives that has failed profoundly. The bailout costs, lost output around the world, and breathtaking rise in unemployment are the result of that financial failure. When an end user talks about how changing practices in the derivatives market will end up costing jobs at his firm one has to place this in that context. If a dysfunctional derivatives market has led to over use of derivatives throughout the system and has made them too cheap to use because provision for the integrity of the system was not built into the costs, then it is imperative to improve that system architecture and force the end use to incur the costs they rightfully represent that they will experience. The resulting system, fortified and more transparent and well regulated, would reduce the likelihood, and magnitude, of a recurrence of a financial calamity. Not only would society be better off with lower unemployment, but the end user in question would likely experience less disruption to demand for his/her product and not be forced to lay off as many employees in the event of a disruption. Reform would increase jobs and stability of employment in his/her own sector in the larger scheme of things. We have, in recent years, had a financial system where the private incentive to take risks exceeds the social value of those risky actions. We have subsidized financial speculation indirectly and underpriced insurance by not setting up proper market structures, particularly in the aftermath of the Commodities Futures Modernization Act. When a subsidy is diminished, those who benefit from it are forced to adjust, profits are curtailed, and employment diminished at the margin. Those effects are important to understand, but they do not constitute a reason to refrain from repairing a broken system. Society and the end users are each likely to be better off when the system’s integrity is repaired. The kind of disruptions to commerce we have recently experienced are enormous, dreadful and unnecessary.
The resistance to regulation has been a bug, not a feature, in the recent economic meltdown. Simply stated, laws benefit society. The laws are not there to benefit crooks. Naturally, then, those that will make a killing if they can get away with breaking laws – crooks – are going to think laws and regulations are bad for their industry. We saw a dramatic illustration of this principle in the last, worst, administration’s breaking down regulatory agencies and riddling our justice system with political hacks. It will take some time, yet, to clean out those impediments to our justice.
As Jim White pointed out in his post on the International Criminal Court here yesterday, the criminals are those that don’t want prosecution. The justice system does not serve the public when it serves those who want to avoid the laws.
Laws are good for our entire society, and the profits that an entire society earn are the basis of a strong economy. Without that strong economy, even the crooks have less to base their earnings on. It is not helping the financial industry to have severely diminished funds to play with.
The public needs representatives working now in Congress to strengthen laws for public interest. If they return to the right wing practice of tearing down regulations, we will descend back into chaos. Everyone will be worse off for that, and the financial industry will have achieved its goal, only to further to destroy the economy it depends on.
Q.E.D.
5 Comments
“The tragedians in their testimony are leaving out the real economy, and waxing desperate over their clients, the bubble profiteers.”; Please don’t except the role of the ObamaRahma Admin in such ‘regulatory reform’; remember, they have already condemned Dodd’s bill which seems to be a good bill.
“ROBERT SCHEER: Right, and he’s also under pressure, because he did get insurance money and all that sort of thing. But the fact is, he’s got a bill that makes sense, which is, you know, the Fed has been at the center of the problem. Ron Paul is right. The Libertarians are right. You know, the Fed is out of control. It has a higher degree of secrecy than the CIA. We don’t know what they’re doing with our money. There is no accountability there. Basically it’s run by the banks themselves on the regional level. They’re the ones that are listened to. And what’s happened is that Chris Dodd said, no, you’ve got to take power away from the Fed, and you have to put a new agency that will control these “too big to fail” agencies. And the administration is opposed to it. I can’t—I mean, I know why they’re opposed to it.
AMY GOODMAN: The administration is opposed to it, and the Republican senators are opposed to it.
Sorry, I was offline and am late replying. The White House has other proposals, true, but Dodd is working on very consumer friendly legislation and is right to do it, as Jane Hamsher has been right to push for the consumer in health care. It makes the difference to try even when for now the success will probably be limited. Regulation of financial industries will need to be pushed hard, as there are hordes of lobbyists and the entire industry’s forces in the battle, trying to keep it from happening.
Well written piece. Pandora’s box has been disgorging demons in the US for nigh unto ten years now. The funny thing is that Japan’s Pandora’s Box opened 10 years before ours. Worse, China’s Pandora’s box is bursting at the seams. I give it five to six more months of run-up until the pressure bursts the membrane.
Pop goes the Bubble. Here comes the trouble.
What was that about
By Jove, I think you’ve got it! Seems that China works that way…
China executes two over tainted milk powder scandal
I wonder if they have enough bullets for all the financial scammers over there… Some end-user exception! (Hold the geniality…)
If you insist, no geniality for you, then.
You remind me of what I was taught about the mysterious oriental world as a child, that they had so many people that life just didn’t mean what it does to us over there. Wonder how the high incidence of infant deaths and general death rate increase among the uninsured in the U.S. works into that scenario.
Yes, it is a remarkable thing that our culture de-humanizes non-conformists as a defense mechanism. I’m amazed but not really suprised how shrill the right has become in villifying that which it either fears of does not care to understand.
For those who seek to maintain the continuity of their own point of view, the gun is the ultimate arbiter of political correctness.
I’m not sure whether to fight fire with fire, or just sit back and watch the myriad systems of ideologically centered cultures self-annihilate. I guess, either way, “thought” is the ultimate destroyer of worlds.