{"id":1744,"date":"2010-03-15T07:10:00","date_gmt":"2010-03-15T11:10:00","guid":{"rendered":"http:\/\/blogs.northcountrypublicradio.org\/inbox\/2010\/03\/15\/the-great-recession-was-a-failure-of-capitalism-not-politics\/"},"modified":"2010-03-15T07:10:00","modified_gmt":"2010-03-15T11:10:00","slug":"the-great-recession-was-a-failure-of-capitalism-not-politics","status":"publish","type":"post","link":"https:\/\/blogs.northcountrypublicradio.org\/inbox\/2010\/03\/15\/the-great-recession-was-a-failure-of-capitalism-not-politics\/","title":{"rendered":"The Great Recession was a failure of capitalism, not politics"},"content":{"rendered":"

Our collective understanding of the financial meltdown that nearly cratered the US economy in 2007 and 2008 has already gone through a couple of big revisionist treatments.<\/p>\n

Michael Lewis’s “The Big Short” — a new history of the disaster — corrects a lot of the nonsense and puts the blame squarely back where it belongs: Wall Street.<\/p>\n

First, let’s dispense with one of the biggest myths promulgated over the last 24 months, that the disaster was caused by over regulation.<\/p>\n

Conservative and libertarian analysts argue that politicians, led by the Democratic Party, forced or at least strongly encouraged bankers to lend money to home-buyers who couldn’t afford to pay back their loans.<\/p>\n

There is some truth to the idea that Democrats pushed overzealous home-ownership policies.<\/p>\n

But that didn’t cause the meltdown.<\/p>\n

As Lewis’s book makes crystal clear, the problem was that Wall Street firms “bundled” piles of those crappy mortgages into big collective funds, which they could sell to unwitting investors.<\/p>\n

They then convinced rating agencies to rate those funds at AAA levels, even though many were junk, thereby making it impossible for those investors to know what they were buying.<\/p>\n

And then the big banks convinced insurance companies like AIG to cover any losses that might be incurred by the banks themselves if their funds tanked.<\/p>\n

By the time they were done, the octopus of Wall Street had entangled every corner of the economy in the sub-prime debacle. <\/p>\n

The problem, as Lewis makes clear<\/a>, was that most of these investment mechanisms had no government regulation or oversight.<\/p>\n

Those risky insurance maneuvers — unregulated. The crooked ratings system — unchecked. <\/p>\n

And when the dance finally ended, taxpayers were forced to bail out these gangsters.<\/p>\n

The worst part is that the con-men will do it again. Why? Because the bonus system still in place incentivizes risky, short-term profits. <\/p>\n

Lewis couldn’t find a single top executive culpable for the meltdown who didn’t walk away rich.<\/p>\n

What we need now is a major overhaul, one that offers clear oversight and regulation, while providing transparency for investors.<\/p>\n

We need to break up the big banks, so that their size and the complexity of their portfolios don’t transform them into lumbering elephants.<\/p>\n

We also need to develop a new class of regulators, educated well enough to understand the complicated mechanisms they’re policing.<\/p>\n

If anything, the big mistake made by politicians was scrapping systems of oversight and regulation created after the Great Depression. <\/p>\n

That’s an error we have to reverse.<\/p>\n

But the Bush and Obama administrations got one bipartisan thing right: <\/p>\n

They agreed that many of these banks were too big too fail. They propped them up, and prevented another Great Depression.<\/p>\n

The politicians on both sides of the aisle were the good guys. But their jobs is only half done. <\/p>\n

By rebuilding some of the regulatory muscle stripped away over the last fifteen years, we can also rebuild a sound and stable capitalist economy.<\/p>\n","protected":false},"excerpt":{"rendered":"

Our collective understanding of the financial meltdown that nearly cratered the US economy in 2007 […]<\/p>\n","protected":false},"author":12,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/blogs.northcountrypublicradio.org\/inbox\/wp-json\/wp\/v2\/posts\/1744"}],"collection":[{"href":"https:\/\/blogs.northcountrypublicradio.org\/inbox\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.northcountrypublicradio.org\/inbox\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.northcountrypublicradio.org\/inbox\/wp-json\/wp\/v2\/users\/12"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.northcountrypublicradio.org\/inbox\/wp-json\/wp\/v2\/comments?post=1744"}],"version-history":[{"count":0,"href":"https:\/\/blogs.northcountrypublicradio.org\/inbox\/wp-json\/wp\/v2\/posts\/1744\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.northcountrypublicradio.org\/inbox\/wp-json\/wp\/v2\/media?parent=1744"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.northcountrypublicradio.org\/inbox\/wp-json\/wp\/v2\/categories?post=1744"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.northcountrypublicradio.org\/inbox\/wp-json\/wp\/v2\/tags?post=1744"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}