Merrill Lynch, Bear Stearns and Lehman Brothers are gone off the board. The most dynamic twins since Mary Kate and Ashley, Fannie Mae and Freddie Mac, have left an enormous crater in the belly of the United States financial landscape. Then the $85 billion bailout deal for the insurance conglomerate American International (AIG) seemed to push the limit. And for the encore, a historical $700 billion federal bailout to get Wall Street back to even blindsides the already overburdened American taxpayer.
From its corporate greed to its over-leveraged trading and its excessive and unwarranted executive pay packages, Wall Street has left Americans waiting for its next performance. As the once mighty and seemingly indestructible names disappear, what measures must be implemented to protect future investment and public confidence in the financial markets?
We face this $700 billion bailout with the hopeful notion that the U.S. Treasury can eventually turn a substantial profit in years to come on these toxic mortgage-backed securities. This very thought unnerves me and gives me a deep sense of confused hopelessness. Is this our only option at this point? Whether to use public funds to rescue private industries — not due to severe, unexpected competition, but to a financial industry full of high-risk incompetence and an addiction for self-serving shortsightedness — is now a decision sitting on Congress' lap.
A lethal taxpayer "D.A.R.T" (Disclosure, Accountability, Regulation and Transparency) must be flung into the chaos as a cure for current ills and an immunization against future attempts to derail the capitalist system. Wall Street and the mortgage industry's greed took away their privileges of deregulation bestowed upon them almost three decades ago. Unlike other struggling American industries like the airlines and the automobile makers who crave desperately for the same bailout status, the financial industry floats untouched and unregulated.
Disclosure is paramount in facilitating the necessary changes. For public confidence to return, Wall Street must cease hiding behind intricate derivatives, self-regulating agencies and an atmosphere of neglected fiduciary responsibilities. From unregulated hedge funds to off-the-books mortgage investments to non-decipherable investment vehicles, Wall Street must make disclosure the friend of the open capitalist arena, not anti-competitive stigma. The investing public deserves it and will need it in order to restore any sense of public confidence.
Accountability must be the hallmark rallying cry that justifies the writing of this $700 billion bailout check. How about making "systemic accountability" part of the new version of Wall Street jargon? When the market turmoil subsides, there must be a full-fledged congressional investigation to see if there exist fraud, cover-ups or other criminal actions. If we can devote congressional time and energy to steroids in baseball, we can sift through this mess and find who may have been culpable in causing this national economic disaster.
Wall Street plays the "capitalist card" when it comes to regulation. Its players claim that a free-market system can only prevail in a highly unregulated atmosphere with minimum controls and oversight. Excuse us for asking what they are doing with our investments and our pensions. When the autos and airlines fail, it is usually through a raw tragedy involving loss of life. The outrage when autos and airlines malfunction and are not properly regulated runs deep and personal. Although Wall Street's greed and malfeasance created heartache, havoc and decimating financial woes, the failures are sadly soon forgotten and somehow do not touch a nerve personal enough to warrant a powerful public outcry. Hopefully, this time is different.
Regulation is a searing tattoo that must now be inked into the very soul of Wall Street. The excessive abuses of leverage, the ingestion of toxic risk and the hefty multi-million dollar executive pay and severance packages warrant the supposed anti-capitalist punishment of a more thorough regulatory environment. Again, public confidence will only rise from the ashes if people see that Wall Street is not a rigged game full of self-proclaimed brainiacs that ignore the tragic pitfalls of irresponsible and unethical leverage and risk.
The United States, as a citadel of pure democracy and capitalism, cannot have international credibility if the powerful engine that is Wall Street functions in a shadowy, clandestine atmosphere. The murky financial products which most Wall Street higher-ups could not even explain can no longer be allowed to exist. Just like the trusted surgeons who sit with their patients explaining what will take place from point A to point Z in tomorrow's major surgery, Wall Street and the beleaguered financial government agencies must go to extremes in telling the investing American public what goes on with our hard-earned investments and savings. Transparency must be a cornerstone of this historic bailout and filter its way to the top of the Wall Street lexicon, offsetting "systemic risk" and "too big to fail" as synonyms for incompetence and greed.
Is the U.S capitalist system so enormously complex and globally interconnected that major corporate failures must never occur? If so, this diffuses the free market system instead of spreading it. Not allowing a person or group of people to experience failure in a pure capitalist society creates a fantasy world where artificial rescues overtake realities, or as one astute financial columnist proclaimed, "Wall Street private gains and government socialized public losses" do not mix.
Public funds to cover private financial corporate losses, no matter how enormous, destroy the confidence and foundations of a capitalist society. The panicky pundits and financial wizards clamoring to avert another Great Depression are the very ones who could not utter the word "recession" a few short weeks ago. Historical financial data, when compared with today's, tells us a depression is a very big stretch. Politically, it is easier to pass through this enormous taxpayer bailout with the doomsday of a depression looming as the imminent consequence. Quickly blaming short sellers is a feeble attempt at finding a scapegoat. Professional shorts wear the badge of Wall Street's watchdog. They uncover corporate weakness, executive incompetence and possible malfeasance. Shareholders and investors are the beneficiaries of their thankless and unfairly criticized work. While Enron rode the wave of Wall Street popularity and invincibility, 'twas the despised shorts that revealed the massive fraud right before us. The shorts always play a pivotal role in balancing the news and keeping corporate America on its collective toes.
Last spring, I wrote in this paper (Tufts Daily, April 16th) about the questionable bailing out of Bear Stearns, citing my deep concern of how government bailouts puncture the roots of a true capital system where failures of all magnitude give credence to the stalwart tents of survival of the fittest and pure economic cycles.
As the Treasury and the Bush Administration scramble for the congressional seal of approval in the coming days, lurking in the shadows are two of America's giants awaiting their day at the bailout trough: the airlines and automobile industries. Fragile as they are, will the government ignore their pleas for assistance, or will the bailouts continue? And we will then enter our oxymoronic era of "socialized capitalism"?
Wall Street must transform back to a place where capitalism fosters and supports innovation and creativity for the betterment of society and release itself as the cog of transactional behavior built on self-interest, greed and debilitating shortsightedness. Our instant-gratification society must slide back a few giant steps to a land of patient growth, shrinking wealth gaps and promoting responsible financial entities that serve their clients before themselves.
--
Tim Stratford is a visiting lecturer who teaches "Understanding the Stock Market: History, Structure and Impact."
