Wednesday, March 26, 2008

"Restoration Calls...Not For Changes in Ethics Alone"

The economy should be society’s servant. Society should not prostrate itself before “the rulers of exchange of mankind’s goods.” The precipice of economic disaster upon which the United States now rests challenges our nation to again “apply social values more noble than mere monetary profit.” It requires us to re-examine our roles as citizens and the role government may have in the economy. But far from a call to moderate speculative behavior through voluntarily acts of greater responsibility, the economic straits in which we find ourselves require a more demanding set of changes to rectify that which unfettered and unregulated, unmanaged and unfeeling markets have wrought.

The continued deregulation of our economy, particularly the financial sector, has caused enormous harm to the well-being of the United States and its citizens. In this environment:

“The leaders in the banking world in the United States have not only been forgetful and neglectful of their responsibility to the public but they have forgotten their own best interests, and many of them are reaping now in the distress that confronts them the legitimate results of their own folly and short-sightedness.”

Though this statement by Representative Henry Steagall (D-AL) is nearly 75 years old, it applies no less today than it did during the Great Depression. The Glass-Steagall Act which bears his name along with that of Senator Carter Glass (D-VA) should never have been repealed. It was a short-sighted plan motivated by unmitigated greed and the desire for “greater efficiency.”

What it gave us, less than 10 years later, was speculation, recession, and now, in the wake of the Bear Stearns debacle, actual failure. This was legislation designed to protect the interests of the people of the United States—the savers, the depositors, and the investors—and in doing so it made many well-off, if not rich. It regulated the activities of the banks, restricting them from gambling with their investors’ money, be it in dotcom stocks, developing economies, or subprime mortgages. Most of all, this act helped inspire confidence not as a piece of legislation, but because it worked, perhaps not perfectly, but enough to prevent financial disasters caused by public lack of confidence. The repeal of Glass-Steagall and the resulting financial crisis may be separated by a decade, but they point toward a larger issue. During times of plenty, perhaps we do not need such regulation, but without it how can we prevent the slide into recession or depression?

Government ownership is not the answer. Robert Reich contends that even if it were, the fact remains that it is “not even OUR government that's holding the strings.” Continued deregulation obviously offers us no way out. We need a return to responsible and effective regulation, much as we had during the post-war years. Even if behavior were to change, the structures which reward irresponsibility and exacerbate inequality remain because the markets will not regulate themselves. Far from perfect and far from efficient, unregulated markets reinforce inequality and do nothing to correct exploitative, reckless, or otherwise negligent behavior without doing harm to the master of the economy: society. An unregulated economy serves only itself, but a regulated economy can serve us all.

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