The Cost of Incompetence and Ideological Fanaticism

From a post by Robert Reich:

Andrew Haldane, Bank of England’s Financial Stability Director, figures the financial crisis brought on by irresponsible bankers and regulators has cost the world economy about $4 trillion so far.

This is the real price of the lack of regulation caused by bribes from Wall Street and the ideological fanaticism of the Republican party which has argued that the only good government is "no government". The Federal Reserve Chairman said that banks were "big boys" who knew how to look after their interests. Well, that was a $4 trillion ideological mistake.

What did happen is that the criminals got away with the crime and continue to pay themselves handsomely with big bonuses while the economy is in shambles and taxpayers have been saddled with huge budget deficits at all levels of government because of the Great Recession.

Meanwhile the American public seems to have forgotten the mismanagement under Bush and are angry because Obama has brought the US into the 21st century with a health care bill that moves the US closer to standards upheld by the rest of the developed world. But the clever ideologues in the Republican party have convinced voters that Obama is an illegal alien who usurped power and is quickly converting the US into a socialist slave labour camp. They've used radical talk radio jocks to rile up the people into a unthinking frenzy. Nobody has stopped to look around to notice that it was Bush who destroyed 10 million jobs and Obama is working hard to stop the collapse and is just not managed to halt the fall and the slow recovery will now start. Nobody notices that it was the Republican party, the party of "NO!" that has tied Obama's hands in trying to soften the collapse, recover the jobs more quickly, reduce the foreclosures. Nope. All they can see is the crazies of the "tea party" activists foaming at the mouth uttering nonsense while hiding the truth.

It is clear to me that Obama has fallen short of what he could do. But unlike Bush or the Congressional Republicans, at least Obama is trying to do the right thing.

As Robert Reich points out, Obama may be failing but it is because big money is buying politicians left, right, and centre:

Finally, consider the political power of the big Wall Street banks. They and their executives and employees are now among the biggest contributors to both parties. Wall Street lobbyists are crawling over Capitol Hill. The banks and their lobbyists will ensure that regulatory loopholes are built into regulations from the start. Remember: They dismembered Glass-Steagall (with the help of their friends in the Fed, on the Hill, and in the Clinton White House), and fought off derivative regulation (ditto).

As long as the big banks are allowed to remain big, their political leverage over Washington will remain big. And as long as their political leverage remains big, the taxpayer and economic tab for the next mess they create will be big.

By all means, give regulators resolution authority and also impose the tightest regulations possible. But Congress and the White House shouldn’t stop there. Limits should be placed on how big big banks can become.

How big? No one has been able to show significiant efficiencies over $100 billion in assets. Make that the outside limit.

To be sure, smaller banks might still be subject to runs. That’s why the Federal Deposit Insurance Corporation was created in the 1930s – to ensure depositors in the event a bank gets into trouble, so they won’t have to run to protect their savings. And why the Glass-Steagall Act was passed – to separate commercial banking (where depositors put their money) from investment banking (where betting is done). We could expand insurance to certain categories of bank creditor, and we should resurrect Glass-Stagall.

But the only way to make sure no bank it too big to fail is to make sure no bank is too big. If Congress and the White House fail to do this, you have every reason to believe it’s because Wall Street has paid them not to.