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We are being taxed into the stone age, another myth

Conservatives have told us over and over again that are taxes are simply too high. We pay too much. Several years back I went to see J. C. Watts speak. I’m happy to say that I didn’t had to pay that much to hear him because he was on the tax thing. I’m paraphrasing – “when we get up in the morning we are reminded that we are paying taxes on our house. When we brush our teeth we are paying taxes on the water and tooth brush. When we kiss our spouses in the morning, there is a marriage tax. We get in our car there is a car tax. When we fill up with gas there is a gas. We are taxed to death which, of course, bring us to the death tax.” The conservatives were standing on their feet. I’m sure that some were crying with joy that someone was feeling their pain. I felt nauseated because Mr. Watts was shoveling garbage. He was mixing recurring taxes with one time taxes. He was mixing local, state and federal taxes all in one bag which is a great way to get conservatives frothing at the mouth but a terrible way to move us past rhetoric and towards policy solutions.

Today our federal tax burden is less than it has been since 1950. Harry Truman was president in 1950. The Peoples Republican of China was just formed. The Russians had just exploded their first hydrogen bomb. GM and Ford were stable companies. That was a long time ago. Republicans would have us believe that we are paying more in federal taxes than ever. That is simply not true.
From EPI:

This diminished tax burden on the wealthiest has contributed to the historically low federal revenue levels we are seeing today, and in turn, to higher deficits. The Congressional Budget Office projects federal revenue in 2011 will total 14.8% of GDP—the lowest level since 1950. At the same time that the tax burden has shifted away from the wealthy, this same top income group has enjoyed  massively disproportionate income gains.  Between 1992 and 2007, a time in which income for the average household and top one percent grew 13% and 123%, respectively, the income for the top 400 households grew fully 399%.

Millennials in Georgia Clean Up after BP

Contributors: Hilary Doe, National Director of the Roosevelt Campus Network and Shayna Pollock, Roosevelt Campus Network, University of Georgia
As people across the country gear up for tax season, beltway politicos turn their attention to the State of the Union, and everyone everywhere talks about debt and tea parties, let’s not forget about the State of the Gulf Coast–the deficit of wildlife, commerce, and jobs in the area. The destruction that the BP oil spill caused in our waters, on our land, and for the people all along the coast. Though, like everything, BP’s fifteen minutes in the spotlight has ended, there is no deficit of hope on the part of young people, committed to keeping those affected by the oil spill in mind and preventing another disaster from occurring in the future.
The Deepwater Horizon Oil Spill happened nearly 9 months ago. After gushing oil for 86 days, making it the largest accidental oil spill in history, the US government declared the rig officially capped in September. The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling declared the explosion avoidable. Better governmental oversight and implementation of more extensive precautions could have prevented the blowout.
Frustrated by reports of weak oversight, an ineffective claims process, immense wildlife destruction, and economic devastation, the Roosevelt Institute chapter at the University of Georgia, engaged in a project entitled SPIL: Solving Petroleum Impacts Legislatively, traveled to Dauphin Island and Mobile, Alabama to learn first-hand about the impacts of the oil spill through interviews. While the nine students on the trip conducted research beforehand, the trip to the gulf region allowed for further in-depth qualitative research on a variety of topics relating to the spill. The interviews touched on the claims process, contracting for clean-up assistance, oversight of oil rigs, emergency preparedness, and the long-term environmental effects of the spill. Across these numerous facets of the spill, interviewees continued to be disappointed by BP’s coordination of the entire clean-up and claims effort.
Multiple parties are to blame in the environmental disaster that destroyed miles of coastline, wrecked ecosystems, and ruined the tourist industry in the Gulf states. However, the Deepwater Horizon Oil Spill is evidence of one overarching systemic problem: the relationship between oil companies and the government.
BP capped the flowing rig, but the primary problem remains unfixed. The government continues their futile efforts to clean up both the economic and environmental effects of the spill. However, their “solution” utilizes the same broken mechanisms that led to the explosion in the first place: the immense influence of BP. How does this promote effective regulation and transparency? BP pays Kenneth Feinberg. BP, along with other big oil companies, develops the industry standard for oil rig inspection and safety. BP hires its own workers for contract instead of using local business people harmed by the spill. BP funds the scientists still researching the damage in the gulf. The disaster continues to unfold through unanswered claims, devastated businesses, and largely unregulated rigs.
The researchers from the trip are now tasked with the immense challenge of composing policies that will reduce the current devastation and set a regulatory framework for the future. The group of researchers will ultimately produce six unique and progressive policies that aim to solve a specific failure within the Deepwater Horizon Oil Spill.
As part of this initiative, Roosevelt at UGA will be hosting a conference on April 9, 2011 to unveil the research group’s findings and bring other students, experts, and policymakers together in a mutual exchange of ideas and information about how to solve the current crisis in the gulf and prevent future offshore disasters.
Complimenting the conference at the University of Georgia, Roosevelt at UGA is sponsoring the release of a one-time publication compiling short articles, written by students and policymakers participating in the conference, on the crisis in the Gulf to be published by the Roosevelt Institute and disseminated at the national level.

Fix Economy, Then Balance Budget

I spoke with a friend of mine today, a friend I haven’t talked to in a long time. After the pleasantries, the Right Wing nonsense started. Obama is spending too much. Okay, I asked, how much is too much when you have an economy that is capable of generating massive amounts of money? There was no answer.
The harping of conservatives has become louder and louder over the last couple of months over the budget deficit. They have wrongly stated that Barack Obama spending us into poverty. There are many analogies that could be used, but the one that I’ll use right now is that our house is on fire. First, we need to put out the fire. Secondly, we rebuild the house. In light of the latest economic numbers we need to spend more and create more jobs.
I’ll avoid mentioning the obvious, that these deficit hawks were silent in 2001, 2003 and again in 2004 as President Bush passed massive tax cuts that were not offset by massive spending cuts. So, these hawks are somewhat hypocritical. Many of these hawks have looked at some promising economic numbers, and the unemployment rate from last month, and point to an improving economy. I’m not sure that the unemployment numbers are quite as rosy as we think. It appears that there is evidence that many of these Americans that are unemployed are now running out of unemployment benefits. Therefore they cannot seek further jobless benefits.

By the way, where are these jobs coming from? For the past 20 years industry has been cutting jobs and streamlining. As business returns, why wouldn’t they simply work with a streamlined workforce? Why wouldn’t they outsource the job, if possible, to somebody in Singapore or Dubai? With the auto industry shrinking and the economy not expanding, where are these jobs going to come from? Well, some of the jobs should come from infrastructure rebuilding that we funded through the stimulus package. Other jobs have to come from this legislation that President Obama spoke about today (See Video). Green Energy. Congress needs to move on this legislation. This is critical. We need this industry to produce millions of new jobs.

I also want to mention that Americans made the same mistake that many conservatives are making now back in 1935-1937. This was right in the middle of the New Deal. GDP was increasing. Unemployment was decreasing. Deficit hawks began to worry about budget woes. A poll at the time revealed that a majority of Americans wanted the administration to balance the budget. Therefore, Roosevelt began to balance the budget. Predictably, as taxes were increased and government spending decreased, GDP fell and unemployment rose. It was the exact opposite that budget hawks wanted to happen. President Barack Obama needs to walk the fine line.  He needs to get the economy going but, as the economy begins to heat up, he does need to slow spending. He does need to balance the budget — after the economy began showing solid signs of recovery. Our economy has shown an incredible capacity to make money. We can pay off his debt, but first we need to put out the fire.

Bust ’em up

I know that some people believe that financial reform is over, I don’t. I think that we need to and must do more in order to save Obama’s presidency and our country.
Senator Byron Dorgan (North Dakota) stood up for the American people a couple of weeks ago. He pointed out that the financial reform bill is too weak. Without fixing provisions (breaking up the big banks) and regulating credit default swaps, he declared “shame on us. We have a responsibility here.”
I think it’s critical for us to understand the huge amounts of money that sits in these large banks, billions and billions of dollars. Banking is no longer simply checking and savings accounts. Banking is now about these high risk derivatives that yield lots of money but also carry lots of risk. The complexity of these financial tools needs to be regulated. An excellent example is the situation where five school districts in Wisconsin invested $200 million in something they thought was safe. (I’m not sure why anybody would think a collateralized debt obligation — CDO — would be a safe investment. I’m not sure many people would consider a synthetic CDO [another order of complexity] would be safer.) You know how this is going to go. The investment starts off well, heads south, then crashes. The five school districts lost everything. It is this kind of craziness which has to be regulated. Now, before you go and point out that a bunch of teachers might be excused for having trouble understanding synthetic CDOs, you should know that the schools had a financial wizard working on this. Even he didn’t understand it.
On October 15, 2009, Alan Greenspan, former Federal Reserve Chairman and economic guru for the past 30 years, was at the Council on Foreign Relations. Chairman Greenspan did a formal question-and-answer session then took some questions from the audience. (emphasis is mine)

One questioner asked: “How specifically should we address the issue of financial institutions that are too big to fail?”
Alan Greenspan said: If they’re too big to fail, they’re too big. (Laughter.)
I — this one has got me. And the reason it’s got me is that we no longer have the capability of having credible government response which says, henceforth no institution will be supported because it is too big to fail…
I think — I mean, I hate to think of just arbitrarily breaking down organizations into various different sizes. At a minimum, you’ve got to take care of the competitive advantage they have, because of the implicit subsidy, which makes them competitively capable of beating out their smaller competitors, who don’t get the subsidy.
So I don’t have a simple solution, but that something has to be done. There is no doubt in my mind — and I don’t think merely raising the fees or capital on large institutions or taxing them is enough. I think that’ll — they’ll absorb that; they’ll work with it; and they will still be inefficient; and they’ll still be using the savings.
So I mean, radical things, as you — you know, break them up, you know. In 1911, we broke up Standard Oil. So what happened? The individual parts became more valuable than the whole. Maybe that’s what we need.

If Alan Greenspan says we should break up the banks, then we need to break up the banks. Greenspan believed in deregulation and free markets. He presided over the largest deregulation of our economy in the last 60 years. He has concluded that he was wrong. The markets need some guidance, some control. That control has to come from the federal government. It can’t come from anywhere else.

Learning from the Meltdown

What are the lessons that we can take from the financial meltdown? Too big to fail is too big to exist. That is one of the biggest lessons, but the Senate hasn’t learned squat.
From HuffPo:

A move to break up major Wall Street banks failed Thursday night by a vote of 61 to 33.
Three Republicans, Richard Shelby of Alabama, Tom Coburn of Oklahoma and John Ensign of Nevada, voted with 30 Democrats, including Senate Majority Leader Harry Reid of Nevada, in support of the provision. The author of the pending overall financial reform bill in the Senate, Banking Committee Chairman Christopher Dodd, voted against it. (See the full roll call.)
The amendment, sponsored by Sens. Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del.), would have required megabanks to be broken down in size and capped so that their individual failure would not bring down the entire system.
Under Brown-Kaufman, no bank could hold more than 10 percent of the total amount of insured deposits, and a limit would have been placed on liabilities of a single bank to two percent of GDP.

Brown-Kaufman was a good start but it got voted down. Why? Wall Street owns Congress. Regulation will never be enough to control these really huge banks. We need to limit their size.
Brooksley Born tried to look at derivatives. She wanted to investigate whether or not we should regulate derivatives. (This was back in the Clinton administration.) Larry Summers, Robert Rubin and Alan Greenspan shut her down cold. Derivatives were not regulated. Billions of dollars that were not accountable to us were part of the cause of the economic meltdown.
Video link
Finally, economist Dean Baker has a nice piece on Wall Street:

We had some hopes of reining in the million dollar babies with the financial reform package, but those hopes appear to be dimming. The effort to downsize the “too big to fail” banks got trounced in the senate last week, garnering just 33 votes. Apparently, the prospect of having to head out into the markets unprotected by the implicit guarantee of government bailouts was too frightening for JP Morgan, Goldman Sachs and the other big banks. Their lobbyists twisted the arms and got the overwhelming majority of the senate to continue the big bank subsidy of free government insurance indefinitely.
There is still another good opportunity to rein in the banks ability to gamble with our money. Senators Merkley and Levin have proposed an amendment that would prohibit commercial banks from trading on their own behalf. The point is that commercial banks are backed up by the Federal Deposit Insurance Cooperation and the Federal Reserve Board. If they get into trouble, it is taxpayers’ dollars at risk.
Until the repeal of Glass-Steagall in 1999, commercial banks were sharply restricted in what they could do, precisely in order to prevent them from taking advantage of this guarantee. If you wanted to engage in highly speculative activity you could set up a hedge fund or an investment bank, but Glass-Steagall prevented banks from gambling with government insured deposits. But this separation was obliterated by the repeal and now we have investment banks like Goldman Sachs and Morgan Stanley that are openly speculating with taxpayer insured money.

The Bill Dwight Show: In My Backyard

The Bill Dwight Show continued its quest for world media domination by walking a block-and-a-half, sitting in my backyard, and talking to me about the Wall Street reform bill. Check it out at

What to do with WaMu?

The Senate opens hearings today into the failure of Washington Mutual. Washington Mutual was among a group of banks that jumped into the subprime mortgage sector headfirst. Jumping into anything headfirst is not usually a good idea until you know how deep the pool truly is. It is estimated that over $700 billion of these subprime mortgages were handed out between 2004 and 2007. These were those famous adjustable-rate mortgages. Washington Mutual handed out over $133 billion in these adjustable mortgages. The former CEO Kerry Killinger stated that WaMu wasn’t being treated fairly by the government. He whined that WaMu “should have been given a chance to work its way through the crisis.” What I want to know is whether anyone in that hearing run over to Mr. Killinger and cry tears of sadness for this millionaire.
When people are given the wrong incentives, we shouldn’t be surprised when they do the wrong thing. Specifically, loan originating officers were given incentives to generate loans. It really didn’t matter what kind of loan. It didn’t matter whether the loan was fraudulent or legitimate. During Washington Mutual’s own internal investigation back in 2005, they found the two offices in California where over 50% of their loans were fraudulent. (At one location was over 80%.) Yet, the practice continued. Why? The money was too good. (Oh, I forgot to mention that their own risk officers were excluded from important meetings. This means that either these risk guys are lying to protect their butts or WaMu knew what they were doing was fraudulent and they didn’t want to rish telling them.)
In Michael Lewis’s book, The Big Short, he describes an incident where a immigrant farm worker who made no more than $14,000 a year was given alone for $750,000.
Lower middle class and upper lower class Americans were hit the hardest by these fraudulent practices. They were specifically sought out by these banks. These are Americans that are holding down one or two jobs. Both parents are working. They’re working extremely hard and they are very close to being able to afford a nice house, in a nice neighborhood with good schools. Something always gets in the way of their dream house. These are everyday expenses that they simply cannot afford — car breaks down, they need a new refrigerator, Johnny was hit in the head with a baseball and needs stitches. So Washington Mutual, IndyMac, Wachovia and others preyed on these Americans.

Here’s my whole problem with these shysters. They made tons of money off of unsuspecting Americans, off of Americans who wanted to believe in the American dream. When the banks collapsed, the Americans were kicked out on the street. Banks who were deemed too big to fail were rewarded for their size and they were allowed to buy the smaller failing banks at fire sale prices. Bankers who lost their jobs were given a little pot of gold on their way out the door. Bankers who kept their jobs were given big fat pay raises for acquiring new assets. Real, honest-to-goodness, hardworking Americans who believed that they would never be given a mortgage they didn’t qualify for were asked to bend over (and kicked in the seat-of-the-pants repeatedly).

So, I hope that something meaningful will come out of these Senate hearings. I hope this is not just a dog and pony show.

How much Money do these Big Banks owe You?

Last week, the Bureau of Labor Statistics released the employment report showing that 162,000 jobs were added in the month of March. Republicans look for the bad in the numbers, the Democrats look for the good and the reality was somewhere in the middle. It is nice that the economy has started adding jobs. The economy has added jobs three out of the last four months, yet we’re still in a huge jobs hole. In order to get the unemployment rate of 9.7% back down to the pre-recession rate of 5.0%, we need at least 11 million jobs. At our current rate it will take a 67 months to create 11 million jobs, just over five years. Who is willing to wait for five years?

I’m in the middle of reading Michael Lewis’ book, The Big Short. The whole subprime mortgage market was a big scam. These Wall Street banks would come up with new and exciting ways to entice people who could not afford a house to take out a mortgage on a house. As far as I know, it wasn’t illegal but it was unethical. The system was predicated on rising housing values. As long as the housing values rose, the folks with adjustable mortgages would simply refinance. (Many of us worry about the cost of refinancing, but those costs were waived in many of these subprime mortgages.) I’m still trying to figure out the purpose of derivatives. It seems like the purpose of derivatives is to hide the true risk and value of a particular security or commodity. It is like using Photoshop to morph me into Denzel Washington. That’s just wrong. If you are looking for Denzel and get me, I guarantee that you are going to be pissed!! Probably the only thing more deceptive and deceitful than derivatives would be these CDOs (collateralized debt obligations), which are nothing more than bundled derivatives. So, just in case you were able to figure out what was in a particular derivative, it became nearly impossible to figure out what was in the CDO. The big banks would then get a credit rating agency like Moody’s to put their AAA stamp of approval on these heaps of garbage. Then they would sell these heaps of garbage to your pension fund and my mutual fund. Funds would buy these things because they were AAA rated by S&P or Moody’s.
So, back to my original question, how much do these big banks owe you and me? When Lehman Brothers, Bear Stearns and Merrill Lynch began to implode in 2008, you and I came to the rescue. The government, using our money, decided that these guys were too big to fail (except for Lehmans, the government let them fail). Failure would’ve caused a catastrophic collapse of our financial system that’s what we were told. So, we reached deep into our pockets and pulled out hundreds of billions of dollars. Over the last several months, many of these banks have been paying back a large chunks of the billions of dollars we lent them. Once they pay all of the $700 billion back, are we square? My answer is no.. not even close. This guy (Andrew Haldane) over the Bank of England calculated that the irresponsibility of these large financial firms has cost the world approximately $4 trillion. When you think about job layoffs, businesses that had to close because the credit markets all froze up, the loss in value of retirement plans, yup… $4 trillion sounds about right.

The big question is how do we collect? It is clear that they owe us. I don’t think that we will ever get paid. I don’t think that we will ever get back the money that we lost because of their incompetence, arrogance and stupidity. The one thing that we can do is to make sure that this never happens again. We have to break up the banks. I don’t think that breaking them up into large chunks is a good idea. We need to break them up in such a way that they can fail without jeopardizing our economy. According to Robert Reich, $100 billion should be the upper limit. Okay, I can agree with this number. It is arbitrary. The loss of $100 billion is not going to bring down our economy. I like the number. (I also want to get rid of credit default swaps and derivatives need to be regulated, as do these huge pools of money called hedge funds.) So, it’s time to push Congress, and especially the Senate, towards better regulation and breaking up these huge banks and financial institutions.

Fix the Recession then fix the Budget Deficits

Bill has been feeling under the weather lately. I hope that he gets well soon. I offered a friendly operation to help him, for reasons that aren’t clear, he declined. 😉
More on the budget and deficits. On Monday I discussed deficit peacocks (folks who talk about balancing the budget but vote for big ticket budget items). On Tuesday, I showed you a graph on budget deficits dating back to 1931. Today I’d like to talk a little bit about the recession and why we needed the stimulus package. I’m going to use an example that Paul Krugman uses in his book, The Return of Depression Economics. The example was originally used in an article entitled, “Monetary Theory and the Great Capitol Hill Babysitting Co-Op Crisis,” by Joan and Richard Sweeney.

Over last two years, I wrote and read a lot about economics. I’m a lot smarter than I was then but I’m still no economics professor. What happens in a recession? Now, as I understand it, a lot of things happen in a recession. The end result is the loss of jobs. Let’s use this babysitting co-op as an example – let’s say approximately 150 couples get together and decide that they will babysit for each other when necessary. They come up with a system so that everything is fair for everyone. They will use coupons. Each coupon is worth one hour of babysitting. The only other thing that I think is important is that couples that join the co-op are given a certain number of coupons and every couple that leaves the co-op must turn in the coupons. Therefore, the currency is stable.

Several couples in this co-op turned out to be extremely frugal and somewhat homebodies. They wanted to accumulate coupons. This led to couples that went out relatively frequently, depleting their coupon supply. They looked for opportunities to babysit but with several couples staying at home, these opportunities were hard to find. This led more and more couples to stay home to accumulate coupons rather than dwindling their supply. As coupons become more and more scarce, and babysitting opportunities became extremely rare, the babysitting co-op was now experiencing a recession.
The problem in the system, the recession, was caused by the imbalance between too much supply (people wanting to babysit) and not enough demand (nobody wanting to go out). How do you fix this problem? The co-op could pass a law and require that couples go out a certain number of times per month. This would cause people to spend their coupons. It would also prevent people from hoarding coupons. That would be one solution. The other solution would be to increase the supply. With couples having an increased supply of coupons, there was no reason to hoard. More couples started to go out and the crisis was resolved.

So, back to the real world. The Obama administration was facing a recession that some thought could turn into a depression if there wasn’t quick action. The Federal Reserve had already infused cash into the system. The Bush administration injected a small amount of cash right before he left office. Think of it as a mini stimulus plan. So Barack Obama and his economic advisers faced rising unemployment, increased foreclosure rates on home mortgages and a GDP that was falling or stagnant. They decided on a stimulus package. The question is how big should the stimulus package have been? Bush signed a $152 billion rebate plan (Economic Stimulus Act of 2008). There’s very little evidence that that did anything. Our GDP is worth somewhere over $14.2 trillion. Bush’s stimulus plan was somewhere around 1% of the Gross Domestic Product. Economists were saying somewhere between three and five percent was necessary truly to stimulate the economy and turn around this recession. The Democrats and the Obama administration settled on $800 billion for political reasons. They really could not get Congress to authorize more money. Remember, we just bailed out the banks. We just bought up toxic assets. The U.S. Treasury was hemorrhaging money. This does not include money that the U.S. Treasury directly infused into our economy (and foreign markets).

The bottom line is that you have to spend your way out of a recession. Once the recession has passed, then we can concentrate on balancing the budget. You can’t balance the budget then stimulate the economy because there would be no economy to stimulate. One of the reasons that the Great Depression lasted so long was because deficit hawks hounded President Roosevelt after it looked like the economy was turning around. He tried to balance the budget too soon and this prolonged the recession/depression. In the State of the Union, you could hear Barack Obama walk the tightrope between fiscal responsibility and the necessity of spending money until the recession is officially over.
Notice that President Obama said almost exactly the same thing while answering questions from Republicans last Friday.

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600 trillion reasons why we need more regulation of the financial markets

A year ago, we were all waiting for the other shoe to drop. The financial giant Bear Stearns had tanked. The stock market was jumping up and down like a Mexican jumping bean. The talking heads on the financial channels had no good news. They also had no good answers. It seemed clear that the one thing that was going to occur was the regulation of the financial markets. We were gonna do something about these cowboys who were taking enormous risks with our money.

I would like to think that I’m somewhat of a smart guy but I don’t get derivatives. Whether it is mortgage-backed derivatives or whatever, I’m not sure why it is legal to slice up debt and wrap it in other securities and call that a AAA bond rating. To me it is the reverse Osmond theory: one bad apple, if it’s big and stinky enough, does spoil the whole bunch. Derivatives, through some magical mechanism, help business manage risk. It seems to me that businesses were managing risk before derivatives were invented and seemed to do quite well at it.

I foolishly thought that there was very little warning when the financial meltdown hit. It was like a fast approaching meteor from out of the sky, I thought, but I was wrong. Years ago, in medicine, when gastrointestinal bleeding from the stomach was very common, physicians talked about a sentinel bleed, a small bleed before the patient really started bleeding. In the financial district, we had Long-Term Capital Management. This was our sentinel event. Back in the summer of 1998, Long-Term Capital Management was ground zero. The story is now very familiar. The executives who ran this hedge fund were thought of as the smartest people in the room. They were heavily invested in derivatives and in overseas markets. This was the go-go ’90s, so returns of 30 and 35% were not cause for alarm but cause for celebration. Everybody wanted to get in until the Russian market began to collapse. The credit markets froze up. Long-term Capital Management did not have enough assets to cover their debt. Because they were a hedge fund, they were basically unregulated. Because they dealt in derivatives, they were almost completely unregulated. Because of their ties to other financial institutions, it seemed that this relatively small company was going to bring down a financial sector. The company was hemorrhaging $500 million a day.
The Secretary of the Treasury, Robert Rubin, called in 14 banks. They were supposed to shore up this dying hedge fund. Larry Summers, he was there. Alan Greenspan was there. Timothy Geithner was there. We’ve seen all these players before. Robert Rubin convinced 13 of the 14 banks to put up $3.65 billion. (This is almost exactly what Secretary Paulson did when Merrill Lynch was drowning in debt. He asked (told) Bank of America to bail out Merrill Lynch. I still want to know why Bear Sterns and Lehman were allowed to go belly up and Merrill wasn’t.)
So, here’s my question. After the meltdown in the summer of 1998, why didn’t Congress begin to regulate hedge funds and derivatives trading? I guess we can forgive Congress for their lack of foresight and vision (even though that’s what we pay them for). We had the financial geniuses that were telling members of Congress that the financial sector didn’t need any regulation. We had lobbyists, tons of them, telling Congressmen that regulation simply wasn’t needed. “The market would regulate itself.” Remember that? This must of been some version of the Jedi mind trick. Well, it is a decade later and it turns out that the market cannot regulate itself. We learned this lesson back in 1929 and we learned it again in 2008. Can Congress gather their strength and willpower to enact thoughtful regulation? Will Congress be steamrolled by financial gurus who really don’t know squat? To be honest, I don’t mind if a bunch of Wall Street executives go belly up every 10 years or so. I do mind if hard working Americans see their pensions go up in flames because of the shenanigans of these knuckleheads. These guys have created a $600 trillion unregulated market. Al Capone couldn’t have done any better.
Frontline has a GREAT documentary on this subject. Brooksley Born was a heroine. She tried to warn us.

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