viernes, marzo 28, 2008

Economic Meltdown: The Consequences of Legal Bribery

The financial services industry has shown again and again that it cannot self-regulate. It's time for the government to step in.

The nation's escalating economic troubles -- triggered by the growing wave of home foreclosures, declining housing prices,and bank failures -- was entirely preventable. It will take years and trillions of dollars to dig ourselves out of this hole, as the ripple effects of the mortgage meltdown reverberate throughout the economy: millions of families losing their homes, a housing industry in disarray, skyrocketing consumer debt, tight credit, massive lay-offs, neighborhoods in decline, and serious fiscal woes for states and cities.
The issue should be at the forefront of this presidential campaign. John McCain is conspicuously silent, even as George Bush proposes to bail-out Wall Street, which played a major role in getting us into the mess. Barack Obama and Hillary Clinton have offered reasonable ideas for coping with the symptoms (especially homeowners facing foreclosure), but neither has proposed the sweeping reforms needed to address the root causes -- five pillars of which are outlined below.
The problem began in the 1980s, when -- under political pressure from the banking industry -- the Reagan administration and Congress stopped regulating the nation's financial institutions. Commercial banks and savings-and-loans used their political clout -- especially campaign contributions -- to get Congress to loosen restrictions on the kinds of loans they could make.
One of government's important roles is to establish ground-rules, and to regulate companies and industries, to save them from their own short-sighted greed. Government is necessary to make business act responsibly. Without it, capitalism becomes anarchy.
Washington now needs to put a short-term tourniquet on the banking industry to stem the damage, and to get back into the business of protecting consumers, employees, and investors from corporate greed. But in its last year in office, the Bush administration is repeating the same mistakes. It is about to invest huge sums of taxpayer dollars to bail out Wall Street -- including the investment bank Bear Stearns -- without insisting on any quid-pro-quo. And if there's anyone who should be screaming "stop!" before the Bushies gift-wrap the bail-out package, it should be John McCain, a politician who claimed that he'd learned his lesson after getting caught being a sock puppet for a sleazy banker. But so far his silence is deafening.
We're in the current mess because the financial industry has too much influence in Washington. This culture of corruption was epitomized by the Keating Five scandal. Five Senators -- including John McCain and four Democrats (none of them still in Congress) -- tried to intimidate federal bank regulators on behalf of Charles Keating, an Arizona real estate developer and owner of Lincoln Savings who had raised $1.3 million for the politicians. McCain, who received $112,000 from Keating and flew to the banker's home in the Bahamas on company planes, attended several meetings in 1987 with federal bank regulators who were investigating Keating for swindling investors.
McCain says he learned a valuable lesson from that experience about conflicts-of-interest, even though he later repeated the behavior in other instances, including intervening with the Federal Communications Commission on behalf of Paxson Communications, which was seeking to buy a television station license in Pennsylvania and which had donated more than $20,000 to McCain and lent him the company's jet for campaign travel.
But if McCain were alone in participating in this culture of corruption, we wouldn't be in the economic mess we're now in. Unfortunately, McCain's behavior was typical. Congress let the financial industry get away with giant rip-offs. While federal regulators looked the other way, banks engaged in an orgy of risky loans and speculative investments. Every aspect of the financial industry was so short-sighted and greedy that they didn't see the train wreck coming around the corner.
There was a time, not too long ago, when Washington did regulate banks. The Depression triggered the creation of government bank regulations and agencies, such as the Federal Deposit Insurance Corporation (FDIC), the Federal Home Loan Bank System, Home Owners Loan Corporation (HOLC), Fannie Mae, and the Federal Housing Administration (FHA), to protect consumers and expand homeownership. After World War II, until the late 1970s, the system worked. The savings-and-loan industry was highly regulated by the federal government, with a mission to take people's deposits and then provide loans for the sole purpose of helping people buy homes to live in. Washington insured those loans through the FDIC, provided mortgage discounts through FHA and the Veterans Administration, created a secondary mortgage market to guarantee a steady flow of capital, and required S&Ls to make predictable 30-year fixed loans. The result was a steady increase in homeownership and few foreclosures.

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