Two Ways to Constrain the Casino Economy
Heads, Wall Street executives win; tails, the taxpayers lose. That's the message of past months, which clearly show that investment banking and other big swaths of the U.S.'s "financialized economy" are, for all intents and purposes, insured by the U.S. government. I'm not against that insurance -- the financial sector really is too big to fail without taking the rest of us down with it -- but I don't think it should be free. In particular, we should put some constraint on the casino economy in the following two areas:
Curb very-short-term speculation. The housing bubble (and, before that, the food bubble that plunged 100 million people into poverty, and the oil speculation fueling last year's sky-high gas prices) shows that, when markets are focused on super-fast speculative trading and executives are rewarded just for this quarter's stock performance, then long-term foresight -- the kind of real investment that benefits everyone -- goes out the window.
All those risky mortgages would never have been sold if they were going to be owned long-term by the bank that gave them, as in the past. These days, however, brokers sell mortgages to Wall Street, which slices and blends them into (not so secure) "securities" for gullible global investors. Their absentee cash fueled hugely irresponsible lending, causing housing prices to skyrocket -- until the inevitable crash. And mortgages-via-Wall-Street are now creating a new kind of pain: a bank may find it in its best interest to renegotiate with a recession-stricken borrower rather than foreclose -- but the company that administers a mortgage-backed security is afraid that, if it shows any leniency, it will get sued by some of its many investors.
(To try to deny the Wall Street problem, conservative pundits are brazenly trying to blame the poor for the mortgage meltdown by targeting the Community Reinvestment Act, which fights redlining by asking banks to make "safe and sound" efforts to actually lend some money in the communities where they are located. But this argument is a load of hooey, as Alan Greenspan told Congress when asked about the CRA: "