Thursday, March 27, 2008

Deregulation and its consequences - updated 3/28

The NYT tells of some questionable accounting in the mortgage business, condoned by one of the Big Four accounting firms:
The 580-page report documents how New Century lowered its reserves for loans that investors were forcing it to buy back even as such repurchases were surging. Had it not changed its accounting, the company would have reported a loss rather a profit in the second half of 2006. The company first acknowledged that its accounting was wrong in February 2007 and sought bankruptcy protection less than two months later as its lenders stopped doing business with it.

The profit was important because it allowed executives to earn bonuses and convince Wall Street that it was in fine shape financially when in fact its business was coming apart, the report contended. But the report stopped short of saying that the company “engaged in earnings management or manipulation, although its accounting irregularities almost always resulted in increased earnings.”
The culture of reducing or eliminating regulation to allow businesses regulate themselves that has prevailed now for decades is now seeing the logical result of such wishful thinking. Even Reagan, who set us off on many false paths, used to say "trust but verify." Well, we have not been verifying and under Bush regulations have been further dismantled as fast as the White House and the agencies can manage to turn policing over to the policed. We all know about corporations and their lobbyists actually writing the text of bills concerning their industries. WTF does one expect if we allow this to happen?

Can one safely suppose that companies out to maximize profits for shareholders and executives will regulate themselves in the interest of public health and safety, of environmental impact, of honesty and transparency?

Remember the "promote the general Welfare" phrase in the Preamble to the Constitution? That is one of the key reasons we institute government. It is one of its legitimate and paramount purposes, OK? Although corporations will always whine about obstacles to their making profits (whine, whimper, sulk), the reason for regulation is not to kill enterprise but to see that it operates within the context of the general welfare.

Why should we allow companies to mistreat employees, destroy the environment, lie and cheat in order to mislead investors and customers? C'mon, really, why?

Well, you allow neglect of the general welfare if (1) you don't value it, which fits with sociopathic personalities, (2) you value greed over community, (3) you want to enrich your cronies so they will take good care of you later, (4) you have completely lost touch with reality, or (5) you've been hoodwinked by a form of conservatism that is, and always has been, oriented toward enhancing and preserving the wealth and power of an elite over against the masses.

So, we are watching our economy in a shambles, with the poor and middle class glaringly vulnerable. Food prices are just beginning to feel the effect of wheat prices rising (doubling, tripling, perhaps worse). Oil prices rise and we feel that at the pump and in increased costs for everything that has to be moved about (almost everything we purchase). Health costs are prohibitive and many are not covered. We are seeing scattered headlines of thousands being laid off again. Housing prices are falling and foreclosures are multiplying. Bankruptcy is much harder to declare (because the credit card companies helped write the laws--remember that outrage?). The value of the dollar falls. The nation goes further and further into debt.

What is the Republican response? Make tax cuts, that overwhelmingly benefit the very wealthy, permanent. Keep a war that drains our economy going (half a trillion spent and three trillion anticipated, at a minimum, before it's over). Deregulate further. Do at least a partial bailout not for the people who suffer but for the companies with shady and shoddy practices.

All of that is designed to make things worse, not better. Why would anyone trust these people with our economy?

Chris in Paris has some comments about Grandpa McCain and the economy at Americablog:
Is it asking too much for Mr. Straight Talk to actually give straight talk? Telling us we have a problem is obvious to anyone in the country, so we're going to need more than stumbling through a Phil Gramm prepared speech. It's bad enough that on McCain's big issue - the unpopular war in Iraq - he never managed to keep a watch on taxpayer spending but the economy will be so much more critical and McCain has no idea. Maybe it's because of his connection to the Keating 5 scandal/S&L bailout but considering the importance of the credit crisis, he's shockingly out of touch. If anyone ought to remember those problems which were ALSO tied to lack of regulation, it ought to be McCain. But no, he just parrots the "let industry self regulate" rubbish until you want to scream.
McCain does indeed represent more of the bad policies and practices that have led to the mess we are in. He does not represent a solution or a way out of them. He only wants to dig the hole deeper when the first rule is to stop digging.

It is time this nation returned to its ideals and looked to the general welfare instead of the enriching of a few, including those who enriched themselves by falsifying financial reports in order to mislead.

Bonddad, who has his own technical blog on economics and posts regularly on Daily Kos, has made some comments under the header "It's Time to Reregulate Business." In it he writes:
Here's the basic problem. Capitalism is based on greed. Some greed is good. It drives people to make better products which benefits us all. Too much greed leads to major problems. The trick is to find the appropriate amount of greed to let out of the bottle. Right now we have way too much greed out there. And that is causing major problems.

Something I've been seeing from the Republican talking heads is the line that the Democrats want to reregulate business and that would be anti-competitive. Here's my response: the system as it currently stands is endangering our way of life and our very lives. Between

-- toys that might kill our children,

-- a food safety system that isn't working AT ALL

-- airlines that might be flying unsafe airplanes and

-- an entire financial system that is shall we say screwed up (Bear Stearns anybody?)

it's clear something isn't working. As a result, something has to change.
[emphasis in the original]

--the BB

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