The financial crisis....who is responsible?
September 21st 2008 17:06
This weekend we are hearing about a financial crisis that "must be fixed now." Treasury Secretary Henry Paulson was On Meet The Press this morning talking about how deep the ills run, and how important it is to act now. He didn't seem to mention being complicit, being asleep at the wheel for years. He could be called the "Brownie" of this financial Katrina. And now he wants sweeping powers to be able to handle the crisis. Many in Congress are calling for a separate entity, or at least more impartial leadership. Those ideas seem more prudent.
I'm no economics wiz, and I have been saying this was coming for at least three years. Here is an article I wrote last summer that articulated the concerns.
Republican Depression
In that article I described the economy as the Titanic, and the looming disaster as the iceberg. Then, we were still a few miles away from hitting it. Now, it's "iceberg, right ahead" What do we do, now that everyone sees the economy, to a large degree, is built on a house of credit cards? That the complete lack of logic and oversight was not only foreseeable, but preventable?
What is happening has happened before. The most striking example in America comes from the 1920's. Huge tax cuts to the rich, speculative real estate run-ups, a deepening divide between the rich and poor. What is different this time is the degree. The rich poor gap is wider, the wealth held by the top is even more, and the financial malfeasance runs deeper. Another difference is just how widespread this is, going worldwide. That is both a minus and a plus. With the potential downside being so economically disastrous to so many, enough action may be taken by governments around the globe to avoid a complete meltdown.
The most recent example of spectacular economic idiocy really began under Reagan with "trickle down" and an ongoing attack on regulation. And yes, Bill Clinton was complicit too. Although he did pay down debt and actually ran budget surpluses, he didn't do anything to reverse the drive to deregulate. The wild-west attitude of financiers continued unabated.
Well, now that everyone is awake and sees the cliff ahead, what do we do to not drive over it? What is important is that the steps be taken. The government does need to seize control of not just debt, but assets too. They need to not just socialize the losses, but the process, to a large degree. We don't need a bailout that then again allows business as usual. And we need strong prosecutions. People need to go to jail, if it is shown they willfully committed fraud. Those are things pretty much everyone will agree on. I would change things a bit more.
I would do more than just bailout companies. I would restructure the entire mortgage market so that it is regulated through a government agency that would make decisions on mortgages not based on profit motive but on impartial criteria that would apply to everyone the same.
I would cap CEO salaries - not just in the financial industry, but across the board. We would have a top minimum wage too, based on what other employees were paid. No CEO could make more than say, 12 times what is given to the lowest paid employee in that CEO's company. So if a CEO wanted to make 12 million, his secretary would have to be paid 1 million. You can't tell me anyone is worth more than 12 times what another is worth. My corporate experience, as limited as it is, tells me the higher up the ladder you go the easier the job gets. But that's just my opinion.
I would make that policy economy wide, including sports franchises, entertainment, and medical fields. Some say that would drive away talent. To where? If we say a primary care physician will make more than a plastic surgeon, and that both will have limits on what they can make, are they going to choose to do something else? Maybe. What we will get is people who are actually committed to the job and not just the paycheck.
I would force energy companies to adopt alternatives or face liquidation. In my world, there would be no such thing as a billionaire, or a homeless person. Sounds sort of Utopian, sure - my hope is that someday we will mature enough as a civilization to get there. For now, we have to deal with the fallout of the latest greed phase of the American experience.
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Comment by Morgan Bell
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Artist Quirk
great analogy!
Comment by Jeff Musall
Comment by Janet Collins
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The Social Critic
Janet Collins Blog
You have a few pretty good solutions there. Why aren't you a candidate in the upcoming US elections? It's certainly gone way past the time that everyone should be saying "enough is enough!"
Janet
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Comment by smith harry
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