While reading the comments on today's Recommended diary by Matt Z (Upset Liberals are Overthinking the Election), I followed a link in the comment by Wolf10 to another analysis of the election results on the blog, Naked Capitalism (the diary recommended by Wolf10 can be found here). On that same blog, I found another interesting diary by Yves Smith examining the failure of our financial and political systems to promote the stability of the financial system. I highly recommend that you read all three diaries. Further discussion and excerpts from of the Smith diary follow below the orange scroll.
The Smith diary features a post by Nomi Prins, a former Goldman managing director turned critic of the way the financial services industry has become a “heads I win, tails you lose” wager with the entire economy at stake. The diary then goes on to examine the history of financial crises in the US and the government response to them. The diary concludes:
By its actions, the US government (under both political parties) has chosen to embrace volatility rather than stability from a policy perspective, and has convinced governments in Europe to follow suit. Too big to fail has been replaced by bigger than ever.
Today, the Big Six US banks are mostly incarnations of the Big Six banks in 1929 with a few add-ons due to political relationships (notably that of Goldman Sachs, whose past partner, Sidney Weinberg struck up lasting relationships with FDR and other presidents.)
We no longer have a private financial system responsible for its own risk, regardless of how it’s computed or supervised. We have a system whose risk is shouldered by the federal government and its central bank entities, and therefore, the people whose deposits seed that risk and whose taxes and futures sustain it.
We have a private financial system that routinely commits financial crimes against humanity with miniscule punishments, as approved by the government. We don’t even have a free market system based on the impossible notion of full transparency and opportunity, we have a publicly funded betting arena, where the largest players are the most politically connected and the most powerful politicians are enablers, contributors and supporters. We talk about wealth inequality but not this substantial power inequality that generates it.
Today, neither the leadership in Washington, nor throughout Europe, has the foresight to consider what kind of real stress would happen when zero and negative interest rate and bond-buying policies truly run their course and wreak further havoc on their respective economies, because the very banks supported by them, will crush people, now in a weaker economic condition, more horrifically than before.
The political system that stumbles to sustain the illusion that economies can be built on rampant financial instability, has also failed us. Past presidents talked of a square deal, a new deal and a fair deal. It’s high time for a stability deal that prioritizes the real financial health of individuals over the false one of financial institutions.
What I find most scary about the current state of affairs is the notion of government funded banks competing against each other in world markets with no regard for the risks that they take. It is against the principles of free trade for governments to subsidize their country’s exports. Yet, that is exactly what everyone is doing with regard to the export of financial services, putting the entire world economy at risk. At the same time, free trade agreements are being considered that will lower current inadequate safeguards.
I am not sure that our watered down financial regulatory reform is enough to bring the beast to heel. And I certainly do not think a Hillary Clinton administration is likely to.