A common cry from corporate America is that government regulation chokes corporate growth and reduces America's ability to compete in the global marketplace. Recently, noted author Bill Black was interviewed by Bill Moyer. Mr. Black provided his overview of how the deregulation of the financial markets from the late-1980's to now created the climate for the near collapse of the global financial markets. If you have a moment, you may want to watch the interview: http://www.pbs.org/moyers/journal/04032009/watch.html
What Black describes I believe to be reasonably accurate. Certainly, the underlying lack of creditworthiness is now obvious and reflects loan underwriting practices which were designed to approve loans doomed to fail. The incentive to write the loans was the up front fees. Since the lender never planned to hold the paper to maturity, there was no incentive to make responsible loans. Ultimately, the individual loans were bundled and sold as "derivatives" or "bonds" or "mortgage backed securities" to pensions, governments, and other global investors who believed that these were very safe investments. Some investors even bought "insurance" against default, thereby setting the stage for the near collapse of AIG's financial and insurance services companies. Effectively, we stole from the rich at home and all over the world and lent to the poor who too often lied to get the loans. Both the knowing and unwitting participants to the fraud now reside in the mortgaged homes which are far nicer than their social productivity would have otherwise afforded them. In order to maintain this artificial standare of living, taxpayers are giving more to the "poor" in the form of government backed loan forgiveness and restructuring. In the end, "free market capitalism" and "government deregulation" did more to socialize America's standard of living than Unions and FDR ever could have dreamt to achieve. Of course, the recent robber barons who took their "commissions" from all of the transactions needed to improvidently move this wealth from rich to poor have taken their bonuses and sailed away with little accountability for their misdeeds. The hard-working, responsible citizens who saved their money and invested in these AAA-rated "safe" securities have lost much of their savings. These citizens played by the rules. They saved, lived within their means, and entrusted their money to pension managers and the "fiduciaries" at financial institutions. They told the truth about their income and used common sense when deciding how much to spend on homes and cars. These are the real leaders in our country. Regrettably, our elected leadership is doing little or nothing to hold the rule breakers accountable. Instead, too soon, these "ordinary citizens" will be taxed and see the dollar's value diminished by the inevitable inflation printing all of the promised money will bring. I have seen abuses of trust by the insurance indutry, but nothing as bad as what our financial system has done to injure our standing in the world as an economic leader or betray the trust of our citizens. Our economic crisis is a sad reflection of why the inefficiences of reasonable regulatory controls is lesser than the evil of no effective regulation at all. Thank goodness for the separate regulatory controls of the states' insurance commissioners. They must remain ever vigilant to assure compliance with the sound reserve practices needed to have the money available to keep the promise of payment. What happened in the financial markets is not right. At least, we must learn from this most expensive lesson.
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