The Cost of Nothing

Wow, look at how the time has flown! Ah geez, it's been almost three weeks since I posted anything! But fortunately, in that time, so much has come to pass in the world of American politics! Justice John Paul Stevens, the "liberal lion" of the U.S. Supreme Court, is retiring, giving Barrack Obama his second opportunity to select a new justice for the Supreme Court. The Obama Administration announced its new nuclear posture and strategy and held an international conference on the dangers of nuclear weapons in the modern world. And the Wall Street Financial Reform Bill passed out of committee and looks to be headed for floor discussion within the next few weeks. And I'll get to all of these topics in time.

But for now, financial reform. It lacks the glamor of the battle for health care reform, a struggle that had taken a century to find any sort of progress, but in some ways it is more important than any other piece of legislation brought before the 111th Congress.

The idea of this piece of legislature is to restore restrictions on the banking industry to prevent the sort of economic disaster that struck our country more than a year ago. The bill, authored by Sen. Chris Dodd of Connecticut, is a fairly moderate approach to this solution, bringing in some restrictions on the ways banks can handle debt and derivatives, requiring transparency in the business practices of big banks, and creating a fund, which is funded by taxes and fees on banks, not U.S. citizens, that would be used, in the event of a similar failure, to bail out the banks again, this time without citizen tax payer money, and pay back the bailout of 2008.

However, Sen. Mitch McConnell of Kentucky, the Senate Minority Leader, has risen vehemently against this bill. Even after a slew of compromises, especially in the field of forming an independent consumer protection agency to oversee the conduct of banking entities, and especially after a private meeting with a couple dozen heads of big banking enterprises, the Minority Leader has demonstrated a complete disdain for the legislature. He claims, and has misinformed, to the public that the bill fuels future tax payer bailouts and does nothing to reign in the practices of these out of control banks. His solution: do nothing. Simply allow banks to do whatever they want and when the consequences catch up with them, allow them to fail. To McConnell, the only service of this bill should be to make bailing out of financial institutions illegal.

This is complete rubbish.

If the American economic system could support simply letting these banks fail, then the government would not have spent $700 billion bailing them out. If these banks were simply allowed the collapse, the financial state of millions of Americans, not to mention nations that depend on these banks for loans, would be jeopardized. The bankruptcy system simply does not support the kind of financial turmoil that would ensue from the collapse of the big banking system.

No, I disagree with good ol' Mitch. We simply cannot afford to do nothing. As an alternative, I say we do everything we can to put the financial industry in check. Independent regulatory agencies and other measures to give the bite back to the regulators is a no brainer. These regulators lacked the force, the will, and the ability to do anything to prevent these corporations from following their destructive paths, our government needs to give them that power.

In my fantasy world where Republicans only control 10 seats in the Senate (yes, even in my fantasies, Idaho, Utah, Wyoming, Oklahoma, and Kansas still manage to stay strongly conservative), we would go and nationalize the banking system. There would be no need for toxic loans that cause global collapse, because the pure purpose of these loans is for maximizing profit and a state-run bank would not be interested in profit. And the banks would be mandated not to hoard funds and continue lending money for economic growth. The Bank of North Dakota has proven that such a system works, is stable, and keeps the state's budget in the green and the state's economy growing. But alas, we do not live in this fantasy world of reason. Maybe one day we'll get here.

The single biggest impact this legislation can have on American economics would be taking a page from the great Theodore Roosevelt's book: trust-busting. How do you prevent "too big to fail" financial entities? You make them smaller. A private banking organization should not have the ability to fuel the debt spending of European powers like Greece and Spain! This is a sign of the business being "too big"! Break up these banks, make them compete with each other, and prevent them from conglomorating in the future. Prevent these banks from forming trusts and you will prevent the abuses of the system, the search for endless profits in derivative bundling, and "too big to fail". It's that simple; the government must control the banks, not the other way around.

What McConnell, not to mention the rest of the Republican Party, would like you to forget is that he, and a majority of his party, voted to approve the bailout of the financial industry. They supported the bill as the smartest measure to prevent widespread economic collapse. President Bush signed it within hours of its passage with no winks of thoughts of attempting to veto the bill because of its infringement on the free market.

The word of the Republicans is obviously subject to the political winds of election season and carries as much weight as a promise to completely eliminate taxes. One day the American people will recognize this. Until then, we need to fight forward for real action to be taken on financial reform. Otherwise, we face a leadership that has no qualms in allowing private business to abuse the rights of American citizens.