The Occupy Tea Party Platform, Part I: Reforming the Financial System

Yesterday I suggested that the Tea Party and Occupy Wall Street arose from a common impetus of the people fighting back against The Man holding them down, be The Man government or big business. I proposed that this common impetus could be seized to become the birth of a new political movement looking out for the best interests of the people rather than government or business.

Of course, if it were that simple, our political system wouldn’t be so gridlocked in the first place. So let’s start with OWS’ concern about the depredations of Wall Street, because it most clearly illustrates both the problem and the opportunity. Both the Tea Party and Occupy Wall Street have at least some of their roots in outrage over the huge bailouts given to big banks, but at the same time, who’s going to rein in Wall Street if not the government?

The question is really one of saving Wall Street from itself. It’s as much in Wall Street’s best interest as anyone for the economy to be humming along smoothly. Ask Lehman Brothers or the hordes of other banks that went down as a result of the financial crisis whether they enriched themselves at the expense of everyone else. Individuals who made money from the constructions that precipitated the financial crisis may have gotten off relatively scot-free, but that’s a different problem from “Occupy Wall Street”.

Wall Street’s problem is that, in their zeal to make money, they sometimes throw common sense to the wind and bamboozle themselves into the equivalent of a pyramid scheme. They delude themselves with a bunch of fuzzy math that says that, in aggregate, these investments are an awesome, can’t-miss proposition, even if there are enough not-so-can’t-miss investments hidden in there that the fuzzy math obscures that can still send the entire construct crashing into a heap. Wall Street may have swindled each other and the public, but first and foremost, they swindled themselves. The biggest problem with untangling the financial crisis is that Wall Street failed to do what one would think it would do regardless of what anyone tells it to.

Painting “Wall Street” as the monolithic villain of the story is probably unfair unless you’re arguing against capitalism itself. At least in theory, big investment banks are the engine that drives the system of capitalism, lending the money that allows people to do everything from starting a business to buying a home. If you’ve ever taken student loan money or saved for retirement, your money has probably been tied up in what Wall Street does, and you’re counting on them to make sure you get it back in one piece. Ideally, Wall Street does this precisely by working for its own benefit, because that benefit should be passed down to the people whose money has passed through there, through lower or higher interest rates. It could be said, if you wanted to oversimplify, that a bank’s role is to temporarily redistribute money from those who have it to those who need it, in the hopes that the same money will eventually flow back in the other direction.

Of course, part of the reason why that’s an oversimplification is that banks have what might be considered a weird definition of “need”. Banks are obviously not in the business of simply handing out money to the poor; arguably, getting into that business is what precipitated the housing crisis. Rather, banks lend out their money to people who will (hopefully) use that money to make more money, both powering the economy and allowing them to pay back that money with interest.

The problem is not that Wall Street is too powerful in and of itself. The reason why Wall Street was able to bamboozle itself was because certain specific banks became so big they could effectively act with impunity. Even that isn’t really a bad thing in and of itself, because lost in all the talk of all the risky loans banks handed out is that without risk, there’s no reward. The problem comes when banks become completely isolated from any negative consequences of their actions at the peak of their power, with nothing stopping them from bringing down the entire economy once they’re big enough to potentially do so, because the government will bail them out if they do. The alliance between government and business isn’t even all that great for business.

The answer isn’t to burn down Wall Street entirely, or even for the government to put up barriers to confine it, reducing the incentive for success. What’s needed is some way to keep Wall Street from bringing down the economy without restricting their ability to grow it. That means transparency, not control; rather than tell Wall Street what to do, let’s make sure we know what it is doing.¬†We need independent watchdogs who can keep an eye on what Wall Street is up to and determine whether or not it’s working, watchdogs who can be trusted not to be in Wall Street’s pocket, but can speak up whenever it starts undermining itself – and who will be listened to when they do. And rather than bailing out banks that are “too big to fail”, the government should instead mitigate the damage by protecting such banks’ assets, getting everyone off the bus before it crashes, possibly by liquidating those assets on other banks or even taking them on itself. If the government does need to resort to bailouts, we need to make sure our taxpayer dollars are being spent wisely.

Wall Street needs a check on its power the American people can trust, not one that can’t keep up with it, only seeks to build its own power at Wall Street’s expense, or worst of all, actually makes it easier for Wall Street to abuse its power.

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