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Sunday, August 5, 2012

Privatized Gains, Socialized Losses (Part Two)

(Note: This is the second and concluding segment in a two part series.  The first segment documented how the forces of Wall Street appeared to “outsmart” the US government once again.  Finding a creative way to promote and package financial derivatives, Wall Street escaped protective federal regulation.  As a consequence, a financial bubble ensued, followed by the Great Recession of 2008 from which the masses of ordinary citizens are now attempting to recover.)

Are the stewards of the law capable of keeping up with the powerful forces of Wall Street this time around?  When the financial crisis has abated and things return to a state of normalcy, do we conveniently forget the lessons of history?  What, if anything, keeps us on a forward course, refusing just to ride the cycles of boom and bust, ascent and decline?

In the aftermath of the Great Recession of 2008 the US Congress with President Obama’s strong backing has passed what we are advised is the most sweeping expansion of financial regulatory reforms since the Great Depression.

But, but within minutes of the bill’s passage, several Wall Street groups were leveling criticism at the new regulations, as was The Business Roundtable, the US Chamber of Commerce and other business organizations.

The substance of the law is said to subject more financial companies to federal oversight and regulates many derivatives contracts, while creating a consumer protection regulator and a panel to detect risks to the financial system.  However, a number of the details have been left for regulators to work out, “inevitably setting off complicated tangles down the road that could last for years.”

Before signing the legislation, President Obama remarked that “because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes.”  Mr. Obama said that “There will be no more taxpayer-funded bailouts.  Period.”  Ordinary citizens, however, are expressing frustration and doubt in attempting to take Mr. Obama at his word.  This stems from a working knowledge of the history and underpinnings of the US financial industry, dating back to Alexander Hamilton and his plan for US capitalism based on the British model.

But does anyone doubt the profit-induced mindset of Wall Street to creatively devise new ways to bypass Federal legislation again, no matter how well conceived that legislation appears to have been?  And does anyone also doubt the human element that federal regulators will once again be asleep at the switch, when the time comes for decisive action?  Last time, it took about 75 years for Wall Street to circumvent the Feds, a tribute in and of itself to the staying power of the New Deal.  This time, surely it is again not a question of if, but when.  Where profit is concerned, Wall Street has also proven to be very patient in biding its time.

While ordinary citizens may rightfully give Mr. Bernanke a pass, presently, they are also angry.  The federal government has bushels of money for Wall Street, the large banks, insurance companies and the auto industry, to name but a few, while Main Street is left to fend for itself.  The results and the present economic malaise are apparent.

Frustration and anger are rooted in the reality that the rules of the game are neither particularly fair nor the playing field level.  Raw emotions are heightened by the fact that financial gain from success is privatized, while loss from failure is socialized.

That is, if Wall Street takes a financial risk which succeeds, Wall Street doles out the reward to individuals privately.  On the other hand, if Wall Street’s gamble should fail, the loss is spread out socially among the masses of ordinary citizens.  As a consequence, it is said that there is no accountability on Wall Street.  It is also of little consequence that the risk taken is seemingly reckless, great enough in fact to take down the entire national economy.

Frustrations and anger are further magnified by the fact that ordinary citizens must live within their means.  That is to say, ordinary citizens cannot spend what they do not have.  If the money is not there, spending must be reduced and consequently brought back into balance with income or revenue.  Ordinary citizens wonder, if these are the rules of the road, then why do they not also apply equally to their state and federal governments, which are awash in a sea of financial debt and borrowing?  Of course, it is not always that simple.

Are we ordinary humans capable of not only aiming higher but also achieving real, meaningful progress?  Then-US Senator, Barack Obama, has expressed similar sentiments:

I wonder, sometimes, whether men and women in fact are capable of learning from history --- whether we progress from one stage to the next in an upward course or whether we just ride the cycles of boom and bust, war and peace, ascent and decline.

Given the predictability of our imperfect human nature, one can only wonder.

-Michael D’Angelo


  1. Are federal banking and market regulators part of the problem, or part of the solution?

    Here's your chance to tell Congress to measure the effectiveness of federal banking and market regulators at enforcing fair and equitable capital markets:

    “All that is required for evil to prevail is for good men to do nothing," Edmund Burke.

  2. Since the most powerful players on Wall Street wrote the legislation, it is already designed to favor them to the detriment of some of the weaker players.

    Like most legislation from the state it is designed to reduce or eliminate competition.

  3. The system is working as it was designed to. The money mongers have built a great big ponzi scheme and there is no end in sight. This goes all the way back to the 1700's in the US. The "government" is part of this illusion.