And Its Discontents
On Monday, for better or for worse, Republican members of the U.S. House of Representatives rebelled against the $700 billion Wall Street bailout plan that their own president, secretary of the treasury and legislative leadership insisted was essential to avert a global economic meltdown. In all, 133 Republicans voted against the plan, joining 95 Democrats; only 65 approved, along with 140 Democrats. Welcome to the Era of Reckless Abandonment.
Whatever the consequences of their action for the nation, these GOP free-marketeers-with-a-vengeance can at least claim ideological purity. The current financial crisis is the predictable result of their 30-year crusade to tear down the regulatory controls erected by the New Deal and avoid new ones. What they substituted for them is exactly what House Speaker Nancy Pelosi described in her speech on the floor before the bailout vote: "an anything goes mentality. No regulation, no supervision, no discipline." To their credit (which may be the only credit left in America by the time you read this), the true believers were prepared on Monday at least to let Wall Street suffer the consequences of the colossal folly that they unleashed rather than provide a government bailout. Whether they will remain adamant as the economic floodwaters rise on Main Street is anybody's guess.
In any case, we note that at least one of deregulation's staunchest advocates has had a change of heart. Christopher Cox, the chairman of the Securities and Exchange Commission, shut down the SEC's program of voluntary supervision for Wall Street's largest investment banks last week. "The last six months have made it abundantly clear that voluntary regulation does not work," said Cox, who acknowledged that the oversight program was "fundamentally flawed from the beginning." Unfortunately, this particular epiphany was preceded by the disappearance of the five biggest independent Wall Street firms: Bear Stearns, which was forced into a merger with JPMorgan Chase in March; Lehman Brothers, which went into bankruptcy; Merrill Lynch, which was acquired by Bank of America; and Morgan Stanley and Goldman Sachs, which changed their corporate structures to become bank holding companies, regulated by the Federal Reserve. Earlier last week, Cox asked Congress for the first time to regulate the market for credit default swaps, the arcane financial instruments that played such a big role in the demise of so many financial institutions. It's fair to say that this regulatory conversion took place pretty far down the road to Damascus, but better late than never, we suppose.
Whether others of the deregulatory persuasion will eventually see the light is an open question. But we hope at least that the free-market zealots will come to realize that the world has changed since they first mounted the barricades during the Reagan revolution, intent on freeing the economy from the dead hand of the state. Now, as David Brooks, the New York Times columnist, points out, the vast flow of global capital fuels cycles of bubble and bust, creating a whole new set of problems that will require a whole new set of solutions.
Those are problems for tomorrow, however. Today's still urgently await a solution.
And Its Discontents
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