The election of Scott Brown in Massachusetts has finally made Washington at least pretend to focus on what actually matters to the rest of us. Beyond altering the political calculus on the bloated illogical health care bill or the Cap and Trade corporate welfare masquerading as environmental policy, that election has apparently caused Washington to wake up and listen a bit. The Obama administration has signaled a new readiness to perhaps stop enabling what former IMF chief economist Simon Johnson has described as “The Quiet Coup” on Wall Street and has introduced some baby steps toward reigning in the extreme abuses in the financial system.
The media on all sides of the political spectrum is abuzz with rumors that Timothy Geithner and Larry Summers may finally get dumped and replaced by people that aren’t such obviously puppets of the big banks. There are even signs that Ben Bernanke’s confirmation will get stalled in the Senate, offering at least some remote hope that a more responsible Fed Chairman might be appointed. See “A Note From The Inside”, “Will Obama’s Bank Plan End Moral Hazard?”, “A Cold Senate Reception For Ben Bernanke”, “Is It Just Us, Or Did Tim Geithner Just Get Fired Yesterday?”, Will Next Week See A Sunday Night Massacre For Obama’s Economic Team?”, “Tim Geithner Is A Sore Loser”, “Obama’s Half baked Bank Reform”.
People are angry. Our financial system is supposed to promote solid business development, job creation and economic productivity, not just reward the unbridled speculative greed of bankers and traders. The days have long passed when almost anyone on Main Street believes that the stock markets, the derivative markets or any of the markets for exotic financial instruments actually add value to the economy. Instead it clear that Wall Street has become a parasite on the productive economy. The majority of Americans are sick of having our treasury and the federal reserve raided to backstop outrageous and unproductive speculations that benefit only the titans of finance while impoverishing the rest of us and burdening our nation and our kids with unsustainable levels of debt. There is a brewing demand that banks be forced to again become staid conservative institutions that avoid risk, pay real returns on savings, make and hold solid and prudent loans on economically rational investments and pay their shareholders and employees based on a modest, boring and responsible spread between the interest on those deposits and the interest on the loans.
Washington is still way behind the mood of the country and a long way from catching up with the popular outrage fueled by the obscene record bonuses being paid this year by Wall Street’s “too big to fail” banks that wouldn’t even exist today without recent taxpayer bailouts, especially if banking and securities regulations had actually been enforced. That outrage has cost the Republicans the presidency and both houses of Congress. It has already cost the Democrats the governorships of New Jersey and Virginia, as well as the most safely democratic seat in the senate. Hopefully it will soon cost Geithner, Summers and Bernanke their jobs and open up both the Treasury Department and the Fed to public scrutiny and real audits. If new Republicans like Scott Brown don’t understand that anger and respond by actually breaking up the big banks and letting those that very much deserve to fail do so, then they too will soon be replaced. The popular outrage over the Ponzi schemes that both our government and our financial system have been turned into will not ebb until our government is staffed by people who get it.
Most Americans are not looking for the government to be our nanny, our employer or our master. We don’t want to ruin our kids future with an unbearable mountain of debt wasted on senseless spending programs, irrational handouts and bailouts for cynical campaign supporters. We do not believe or expect that the government can protect us from every lunatic with a bomb in his underwear. Nor do we believe that it can magically turn every ancient ethnic rivalry in the world into a peaceful multicultural democracy through wasting trillions of dollars and precious American lives on senseless and hopeless deployments of our military. We need Washington to shrink, stop borrowing, do far less, spend way less, and start focusing on making sensible laws and regulations and enforcing them fairly so we can have a free, fair, competitive and rational economy.
While the recent noise out of Washington is a sign that our government may not be totally corrupted and clueless, the first actual sign of minimal progress will be passing the bipartisan bill to Audit the Fed. The first sign of real change will be breaking up the big banks. The political party most likely to regain some minimal level of trust in Washington is the one that makes sure that Wall Street becomes a very boring place to work and that the best talent in America is once again attracted to the real economy – designing, building, growing and manufacturing assets of actual value.