President Obama likes to portray himself as a man of the people. But a look behind the veil shows this to be a deception. Take the financial regulatory overhaul brewing in Washington.
I know what you’re thinking: What could better illustrate Obama’s bona fides as a champion of the people? He wants to regulate the banking industry after the recent debacle and is being fought by the banks and the Republicans. Doesn’t this clearly demonstrate his pro-people agenda?
A closer looks reveals the real story to be something quite different. First, there has never been an unregulated banking industry in the United States. You can look it up. And since 1914 we’ve had a central bank, the Fed, whose regulatory powers have only increased over the decades. Several other agencies also regulate the banks. There are regulators at the state level too.
But to focus only on regulation is to miss a big part of the story. In truth what we have had is a banking cartel, a partnership of government (state or national) and nominally private financial institutions. This partnership has two broad aspects that function as a quid pro quo: regulation and protection from free competition, that is, special privilege. The two sides haven’t always agreed on the exact proportions of the two elements, and the bankers have even disagreed among themselves. But lack of unanimity about details should not be mistaken for lack of agreement about the fundamental nature of the system. It is a government-banking alliance. Neither side would have it any other way.
Second and following from what has just been said, the government’s fingerprints are all over the banking debacle. Various agencies of the U.S. government hold major responsibility for what happened. That the banks raked in big profits doesn’t change that; it’s part of the whole story. Fannie Mae and Freddie Mac, both government-sponsored enterprises, encouraged dubious mortgage lending, then bundled vast numbers of the loans into securities. An agreement among the world’s central banks, the Basel II Accord, encouraged banks to hold those securities rather than mortgage loans they could vouch for. And a government-licensed rating cartel gave the shaky securities high marks. In myriad other ways government and banking together created the crisis.
