Recently there has been a series of articles by Martin Wolf in the conservative London Financial Times analyzing the impact of the global economic and financial meltdown. The middle column was titled “Challenge of halting the financial doomsday machine,” (FT April 21, 2010) and the next will be coming out the week of April 27th. Wolf’s analysis hits the old nail on the head and slams it home with intellectual and moral force. I was struck by his phrase “…what happens to finance is not what matters most but what finance does to the wider economy,” summing up the impact also on the broader and more modern meaning of national security to encompass economic and environmental security.
The simple fact is that too many of our financial institutions – with the acquiescence of our authorities – have become a type of organized crime syndicate, shifting ‘paper’ from the “real economy” towards the insiders of these institutions. These institutions take away from productive activities and shift money in the form of ‘paper’ from the “real economy” towards the insiders of these institutions.
There are many modalities to strip value and worth from the real economy and monetize it in the hands of a few, who themselves produce nothing. One such tool of economic destruction is via so-called leveraged buyouts and related acts, in which enterprises are stripped by “financial advisors” and top executives of their assets. They fired employees, creating the illusion of increased productivity, only to turn around and sell the bones with an insurmountable debt. The authorities, enmeshed in the greed of Wall Street/The City, watch approvingly. The other means is the now notorious complex securities including collateralized debt obligations (CDOs) which brought our economies to their knees.
The simple fact is that key financial institutions in America and abroad were conducting activities which did more damage to society than many efforts of terrorists. In America, millions of people lost their jobs and their health care, many were made homeless, others were unable to pay for their mortgages, and a significant level of American productivity was destroyed. Much of it will likely never return.
This was not done by a rogue state, not by al Qaeda, or some foreign malevolent power – it was concocted and conspired in plush offices on Wall Street by people with many opulent homes, numerous private planes and yachts. They all went to smart schools and all were driven by blind greed and inexplicable stupidity, and a lack of caring for anyone but themselves along with a large dollop of arrogance.
They were and are a threat to our national security given what they have done to shift national resources from productive employment and towards their own unproductive pockets. These “masters of the universe” have taken anywhere from 30% to 50% of the profit of the companies they work for and put it into their own pockets. This money could have been directed toward building an American clean energy infrastructure that could have created American independence from foreign oil while helping to combat global warming. It could have been invested in new innovative technologies to serve human health, education and social needs. No, rather much of it is sitting in hedge funds helping to create even more perverse pieces of paper to create yet another economic crisis.
Along with Wolf I agree that a fundamental structural reform in required. The present bills in the Senate and the House are at best imperfect instruments with loopholes large enough for a Goldman Sachs to drive through without a scratch. As the New York Times editorial on April 22nd noted, the Senate bill has too many loopholes and “doesn’t ban the excessive speculation that characterized the Goldman deal.” The bills in short would let the rogue banks get away with robbery of the public interest and an effective and growing “real” economy which in the long run will undermine our national security.
Real reform is best done on an international basis – Europe and North America at least – moving along the same path to make it best work for the global economy. The culture and incentives of the financial marketplace must change. Government oversight, international coordination and uniform rules and codes of behavior need to be put in place to prevent financial cowboys from running away with our economy. Let’s hope that the US, UK, EU and other governments recognize, at last, their mistakes and follow Martin Wolf’s “real reform” ideas and the views of other enlightened economists like Paul Krugman and Robert Reich.
Unfortunately I have no doubt that Republicans on our side of the pond and British Tories on the other side will fight tooth and nail anything that smacks of fairness, restraint, and good economic policy. Perhaps one of the greatest dangers to American and other nation’s security is the perverse version of unbridled capitalism which had become the norm under Reagan-Thatcher-Bush(s) eras. The question before us is: is our governance controlled by the super rich or by the average citizen whose voice seems each day to be diminished by their progressive impoverishment? Our national security may depend on reversing this paradigm.
By: Harry C. Blaney III