Effects of deregulation and unenforced regulation => current crisis

Taking Stock: Government largesse drives capitalism
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By MALCOLM BERKO
Creators Syndicate
Posted Dec 27, 2008 @ 04:48 PM

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BOCA RATON, Fla. — Dear Mr. Berko: I find it hard to believe that the government is tossing money around like ticker tape at a parade. At some point we or our children will have to pay for the big mess created by Wall Street greed. Ordinary people like us have no choice in the matter and are forced to go with the flow. We get nothing out of this $750 billion giveaway and are forced to lump it or like it. It seems that most Americans are paying for this Wall Street greed twice. We lost our homes, independent retirement accounts, pension funds and our jobs. Now, we have to pay for the losses caused by the hedge funds and big New York Stock Exchange brokerage firms. Meanwhile, they got bailed out with money from our pockets while we get kicked out of our homes, our businesses and are forced to declare bankruptcy. Merrill Lynch, Lehman Brothers, AIG, Citigroup, and Bear Stearns and others stole hundreds of billions from workers like my friends and me and now we have to pay them back. This makes millions of Americans angry. But we can’t do a thing about it. It’s like we are serfs and they are the masters. We have been victims of Wall Street greed for the last eight years, while the suits on Wall Street pay themselves hundreds of billions of dollars in salaries and bonuses. I know many people who think like this, and we are bitter. Does this make sense to you, or do you think all of us are out in left field? — D.P., Columbus, Ohio

Dear D.P.: You’re right as rainbows, daffodils and sunshine. The last few years have witnessed the stink and rank perfidy of unfettered capitalism. Even former Federal Reserve Board Chairman Alan “The Mumbler” Greenspan admits he misjudged Wall Street’s intent to self-regulate. Wouldn’t it be nice to see the executives at AIG, Merrill Lynch, Bear Stearns, Lehman Brothers, Goldman Sachs and their hedge-fund affiliates take a perp walk with their alma maters prominently displayed on the front and back of their orange prison coveralls. Harvard, Yale, Stanford, Duke, Wharton, etc. would be so proud.

The following was written several years ago and is relevant today. It clearly explains how Wall Street favors the wealthy and snickers at the poor. Its compelling explanation is derived from a 2005 discussion group in which I participated.

Business activity cannot be sustained unless the rich get richer. And the best way for this to happen is to give more money to the poor! This is where Uncle Sam becomes a modern day Robin Hood and it works like this:

Uncle Sam borrows money from the rich so it can be given to the poor so the poor can continue losing it to the rich. This is the reason why there will always be a budget deficit and an increasing national debt.

To illustrate, let’s assume that there are two classes of people: rich and poor. Rich folks are those with above-medium incomes and poor folks are everyone below. The simple reason the rich must get richer is that they must make an after-tax profit if they wish to continue employing the poor to produce goods and services.

The rich cannot profit from traditional trading among themselves. For example, if there are 10 rich people in a closed room and they have a total of $10 million in cash, they can wheel and deal and trade among themselves to their heart’s content. But at year’s end they still only have $10 million. The value of their real estate or stocks might rise or fall, but that $10 million dollars won’t increase unless another group loses money to them.

Think about it. Capitalism is like a game of poker. The strong players win from the weak, or the rich win from the poor. However, the poor have a finite amount of money to lose, which means our poker game would come to a halt unless a designated patsy can be found. And that designated patsy is the U.S. government. I know it sounds farfetched but listen up and watch the bouncing ball.

Economists who follow money transfers note that in 2006, for example, the poor paid approximately $780 billion more to the rich for rent, food, cars, health care, tools, beer, etc. than they received for their labors at McDonald’s, Wal-Mart, doing yard work, washing dishes or cleaning hotel rooms. So, in order to keep the poor from going completely broke, the government, through taxes, took $320 billion from the rich and returned it to the poor via welfare, Social Security programs and other subsidies. Then, to return the additional $460 billion to the poor so their purchasing power remains intact, the government borrows $460 billion from the rich by issuing new Treasury bonds.

So, after taxes and transfer payments were complete in 2006, the rich made $460 billion, the government lost $460 billion, which was the deficit, and the poor broke even. In effect, the budget deficit equals what the rich keep after taxes. So, if the budget is balanced, the rich can’t make any more money. And if the rich can’t make more money, their incentive to produce will falter, unemployment will skyrocket and the economy will collapse.

I wish I could claim this was my idea, because I think this premise is worth a Noble Prize in economics.

Address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit www.creators.com.
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LANCE DICKIE: FAITH CRISIS FOR TRUE BELIEVERS IN MARKET
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BY LANCE DICKIE
Seattle Times
There are true believers suffering a real crisis of faith. They have been worshipping at the Church of the Free Market, and their doubts run deeper than stockbrokers not answering prayers or returning calls.

For decades, their prophets have preached that economic markets function best when left to themselves, unfettered by government regulation or oversight.

Businesses, investors and traditional market forces would self-regulate, self-correct and self-enforce. Oops.

The collapse of the housing and stock markets trace their way back to decisions and choices made at the highest levels of government and commerce. The rest of us get swept along for the ride, both up and down, and suffer the consequences of hubris, incompetence and criminality.

To hear the humbled apostles for markets free of disclosure and rules begin to mumble about the need for government regulation is extraordinary. Chief among the apostates is former Federal Reserve Chairman Alan Greenspan, who humbly confessed his wonderment at mortgage-lending practices to a congressional committee:

"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief."

He was reminded he had the authority to prevent the lending practices behind the subprime mortgage crisis -- was advised to do so -- and refused to act. Greenspan is contrite. Millions more are in foreclosure.

Three years ago, a handful of regulators were waving red flags about hedge funds and credit derivatives. Lightly regulated exemptions from most rules, they placed enormous bets -- literally -- around the planet. Dense and esoteric, these trillion-dollar segments of the markets seemed pretty remote until ordinary mutual funds -- yours and mine -- began investing in them.

The effects of deregulation and unenforced regulation were cumulative. In 1994, the Financial Accounting Standards Board changed its rule that stock options must be treated as a company expense.

A year later, Congress limited the rights of investors to sue, let accounting firms off the hook in fraud cases and fudged reporting practices. In 1999, the repeal of lessons-learned regulations from the Depression fuzzed the lines between retail banking and investment banks.

Every opportunity to push the limit was taken, as allowed or ignored by law. Industry lobbyists on Washington's K Street had their back.

My favorite bit of apostasy revealed itself ever so quietly in a New York Times column by Ben Stein, a lawyer, writer, actor and economist. And cheerleader. For Stein, the resilient economy was always peachy keen.

Last month, reality set in for Stein. Near the end of a column about fear and foolishness, he slipped in a hope that President-elect Barack Obama will put meaningful regulation in place -- maybe even repeal the private securities law against suing companies. Oh, and maybe inspire a more vigilant Federal Reserve.

Dare I say, there has been an epiphany. People who understand the complexities and see the connections acknowledge how precarious economic conditions truly are.

Lance Dickie is a columnist for the Seattle Times.