Yeah, Right, The Smart Guys Will Fix It....

Unfortunately, one of the worst tendencies of Congress (not just this one, but most) is that it doesn't want to repeal bad legislation. It may want to tinker around the edges of existing law, but, it simply does not readily admit bone-crushingly stupid mistakes--either its own or those of its predecessors--and that's a severe hindrance to getting the necessary changes in place.

AIG could not have put itself in the mess it's in had not Glass-Steagall been mostly repealed in 1999, because under that law, insurers could not dabble in the sort of exotic securities sales and exchanges that it actively sought after passage of Gramm-Leach-Bliley.

Most of the large banks in trouble now are in that fix because of trading in the very instruments that the Commodity Futures Modernization Act prohibited the government from either regulating or overseeing.

These were laws that the financial industry lobbied--expensively--to obtain, and Congress was willing to go along, because it meant continued lavish campaign contributions (and access to wealth via the revolving door), despite the fact that those laws and a few other less-noticed ones were just plain dumb, dumb, dumb. Any idiot could see the end effect of implementing them.

The very obvious solution would be to junk them, begin enforcing once again the laws that do work (too big to fail? Maybe that's entirely due to a willful disregard of the Sherman Anti-Trust Act that's been SOP for thirty years or more) and get back to a regulatory structure that effectively prevents high finance from behaving like a four-year-old with multiple credit cards in Toys `R Us. Because, given the opportunity, they always will.

Too, the administration isn't helping these changes along. The great fear within the administration, I think, is that because the financial services industry is now 21-22% of GDP, fully a fifth of the economy today, Obama's advisors' believe causing big contractions in it will cause big contractions in the economy--i.e., there's nothing left to replace its "output." That's a misperception, leading to an error. Much of high finance didn't actually create wealth--it simply extracted existing wealth from the rest of society and concentrated it in the hands of a very few--the actual added value going into the computations of GDP was, as we've seen in the last year, entirely fictitious.

That, combined with the perception that the very few people causing the meltdown are the only ones capable of understanding it and fixing it, is at the root of the problem, I think. Whether Obama realizes it or not at this point, he's not being served well by people who sincerely believe that restoring Wall Street to its previous splendiferous glory will be good for the economy. It will just be good for the numbers that make up the GDP, and that's another misperception--that GDP and overall economic health are the same thing. If we use artificial standards--including the fatcats buying and selling pockets of hot air to each other--to calculate economic health, we will, inevitably, get results that don't reflect reality. If the GDP were to contract by 10% tomorrow because the government altered the way it measured economic health, nothing would be changed except the numbers--and perhaps the level of misplaced pride in themselves of a few of the self-appointed elite.

I don't know quite how to change this. Repeating common sense seems to have no impact on the Very Serious People of Washington, and telling Congress critters to fix their mistakes is as futile an exercise as trying to convince penguins they can fly. Short of forcibly defenestrating the Masters of the Universe to make a point, we're not likely to see effective change nearly soon enough, and that's worrisome. Most of what's required isn't rocket science, or brain surgery, but that hasn't stopped the Villagers from trying to convince all us schlubs out in the hinterlands that it really, really is even harder to understand than Chinese algebra....