Wall Street Regulation

Glass-Steagall has made somewhat of a comeback with help from the Occupy movement and rising political stars like Elizabeth Warren… The only two political insiders you won’t catch talking about reinstating Glass-Steagall both happen to be running for president.

Part 4 of the Special “Off The Reservation” Election Series in the Long Island Press.

The Banking Act of 1933, commonly known as Glass-Steagall, was established to tame the harmful speculative behavior of an industry run amok in the early part of the 20th century; behavior many observers at the time credited for the market crash that precipitated the Great Depression. For some, the repeal of Glass-Steagall, by the Gramm-Leach-Bliley Act of 1999, was the deathblow to financial prudence on Wall Street.

 In reality it was simply the formal recognition of careless financial practices that were largely in place already. Since the near-collapse of the banking industry in 2008, Glass-Steagall has made somewhat of a comeback with help from the Occupy movement and rising political stars like Elizabeth Warren, the former federal consumer protection advocate now running for Senate in Massachusetts. The only two political insiders you won’t catch talking about reinstating Glass-Steagall both happen to be running for president.

Wall Street reform is as important as it was in 2008 but both President Obama and Gov. Mitt Romney have taken great pains to avoid talking about it too much. For his part, President Obama seems content to rest on the laurels of the Dodd-Frank Act, Congress’s attempt to rein in Wall Street excess, which had enough support to pass but not enough to be properly funded or enforced. According to Romney’s platform, he would “Repeal Dodd-Frank and replace with streamlined, modern regulatory framework.” That’s the extent of his vision for the future of Wall Street according his platform. Ten words.

So while the rest of the country is suddenly talking about a law enacted almost 80 years ago, these guys aren’t going anywhere near it. The truth is, Wall Street reform and, more specifically Glass-Steagall, is more complicated, making it easy for Obama and Romney to be evasive.

So let’s answer two questions. What would actual Wall Street reform look like and what exactly was Glass-Steagall?

The purpose of the original act was to establish a barrier between traditional banks and the risk-taking investment firms, denying investment banks access to consumer deposits and secure, interest-bearing loans. The unwritten effect of Glass-Steagall, however, was to establish a culture of prudency in the consumer and business banking realm, leaving sophisticated professional investments to more savvy financiers who had the ability to calculate the inherent risk of a financial instrument. For decades to follow, the merits of Glass-Steagall would continue to be debated, but it nevertheless drew a marked distinction between the function of a consumer bank and an investment bank.

Today reinstating Glass-Steagall is a common rallying cry among those who decry the bad behavior of Wall Street. Its repeal has become the fulcrum of nearly every debate surrounding deregulation. Actually accomplishing this, of course, is easier said than done.

The best way to reconcile the debate over whether to reinstate Glass-Steagall is to appreciate that the culture of Glass-Steagall was more important than the act itself. Over time the restrictions placed on bankers under the act were chipped away, but the culture that governed the banking industry endured beyond its measures. Eventually, savvy bankers and politicians found ways to loosen its screws and interpret the act to their own benefit.

Don’t Just Blame Republicans

In 1978, President Jimmy Carter oversaw the passage of the International Banking Act, a bill that should probably receive as much, if not more attention than Gramm-Leach-Bliley. Essentially, the act allowed foreign banks or entities that engaged in “banking-like activities” to participate in domestic financial markets. For the first time, foreign investment firms were able to make competitive loans so long as they didn’t compete for consumer deposits; initially individual states could determine whether their regulatory structure could support this new activity. The government would go on to loosen restrictions governing the competition for consumer deposits and allowing bank holding companies to treat money markets like checking accounts.

In his book “End This Depression Now,” economist Paul Krugman argues that perhaps the most influential step with respect to the banking sector came with Carter’s passage of the “Monetary Control Act of 1980, which ended regulations that had prevented banks from paying interest on many kinds of deposits. Unfortunately, banking is not like trucking, and the effect of deregulation was not so much to encourage efficiency as to encourage risk taking.”

 By 1987 the bank holding companies, including foreign companies allowed to operate within the U.S. banking system, were granted access to mortgages to create a package of investments called mortgage-backed securities; the threshold for the amount of investing activity in instruments such as these was also increased, paving the way for the growth of investments backed by the strength (or weakness) of the consumer market.

During that same year, members of the Federal Reserve began calling for the repeal of Glass-Steagall as then-chairman Paul Volcker was providing the tie-breaking resistance. But this was a mere formality because by this time, Glass-Steagall was effectively over.

Yet even though most of the threads of regulation had been pulled from the overcoat that protected consumers from risky banking practices, the culture of prudent banking still existed to an extent; maintaining the Glass-Steagall Act on the books was an indication of this sentiment. Throughout the decades when regulations were steadily eroding, powerful national figures such as Paul Volcker under Carter and Reagan, and Treasury Secretary Nicholas Brady under George H.W. Bush managed to temper the enthusiasm of the movement.

That George Bush Senior heeded their admonitions was an admission that the public’s appetite for deregulation was actually beginning to wane in the post-Reagan hangover. Richard Berke’s New York Times article of Dec. 11, 1988, on the eve of the Bush presidency, encapsulated this feeling. Berke wrote, “Lawmakers and analysts say the pressure is fed by a heightened public uneasiness about deregulatory shortcomings that touch the daily lives of millions of Americans: from delays at airports and strains on the air traffic control system to the presence of hazardous chemicals in the workplace to worries about the safety of money deposited in savings institutions.” Alas, these four years would prove to be a momentary hiccup in the deregulation movement.

During the Clinton years, the nation’s leadership was largely comprised of proponents of deregulation. In fact, by his second term, Clinton was almost entirely surrounded by rabid free market enthusiasts. A former chairman at Goldman Sachs, Robert Rubin, was Secretary of the Treasury, Alan Greenspan was still at the helm of the Federal Reserve and Phil Gramm was the head of the powerful Senate Banking Committee. All of these men had close ties to Wall Street and made no secret of their intention to release bankers from the burdensome shackles of regulation and oversight.

Reforming Reform

In 2008, economist Joseph Stiglitz warned of the enduring negative consequences of deregulation. At a hearing held in front of the House Committee on Financial Services, Stiglitz invoked Adam Smith saying, “Even he recognized that unregulated markets will try to restrict competition, and without strong competition markets will not be efficient.” One of Stiglitz’s solutions was to restore transparency to investments and the markets themselves by restricting “banks’ dealing with criminals, unregulated and non-transparent hedge funds, and off-shore banks that do not conform to regulatory and accounting standards of our highly regulated financial entities.”

For emphasis he noted, “We have shown that we can do this when we want, when terrorism is the issue.”

Still, the nagging question remains as to what reform might look like. After all, not all deregulation is irresponsible. Most of the discussion in the media surrounding deregulation revolves around the concept that our banking institutions are “too big to fail.” Thus the rallying cry for reinstating Glass-Steagall and separating banks from investment banks. I’m in tepid agreement with the underlying principle, but the reality of the situation is far more complicated. The fact is banking has gone global and the deregulation genie is out of the bottle.

As I said earlier, Glass-Steagall was as much about instilling a culture of prudency to the banking world as it was about erecting a barrier between commercial banks and investment banks. Advocates like Elizabeth Warren like to say that prior to 1999 and the repeal of Glass-Steagall, the economy functioned through periods of both prosperity and recession since 1934 without the banking sector once collapsing. It’s a fair, but oversimplified assertion that overlooks the fact that Glass-Steagall was on a ventilator in 1978 and dead by 1980. A 30-year run of prosperity from 1978 to 2008, with a few brief recessions in between, is nothing to sneeze at.

Restoring balance to the banking sector does not necessarily require separating the banks. Not yet at least. It begins with transparency and reestablishing the culture of prudency that has been conspicuously absent over the past decade. After all, you cannot value what you cannot see; nor can you mitigate risk unless you first manage reward.

What this really boils down to is accountability, which is ultimately a behavioral issue. Allowing investors to actually see how a bank behaves by viewing the size and scope of their transactions would theoretically assuage their appetite for risk. Given these conclusions, it’s easier to make the case that our current president would provide more accountability and inspire behavioral changes on Wall Street, particularly given Romney’s intransigence when it comes to considering financial reform. But tough talk against Wall Street has all but disappeared from Obama’s rhetoric leaving little hope that a second term will elicit any further positive change. So this week, while neither man seems serious about financial reform, the status quo is better than further deregulation and letting bankers rule the roost.

Tie goes to the incumbent.

To Spend or Not To Spend

To examine the effect the stimulus had on the economy, it’s necessary to understand the economic philosophy behind it while parsing the figures. The conflict between Democrats and Republicans on this issue is largely a debate over the economic theories of two men: Milton Friedman and John Maynard Keynes.

Mitt Romney called it “the biggest, most careless one-time expenditure by the federal government in history.” Paul Ryan characterized it as “a case of political patronage, corporate welfare, and cronyism at their worst.”

“It” was the American Recovery and Reinvestment Act of 2009, colloquially known as the “Obama Stimulus.” The Republican narrative is that Americans would have been better off not taking on more debt and allowing the omniscient markets to work themselves out. (This argument was noticeably absent in 2008 when President George W. Bush signed a stimulus bill for more than $150 billion.) Before  Obama signed his stimulus bill into law, House Republicans had voted against it. Every single one of them. In the Senate, only three Republicans approved the bill.

So we know where the parties stood in 2009—pretty much where they stand today. Democrats largely believe that the stimulus prevented the complete, Depression-like collapse of the economy. Republicans believe it had no effect on the economy and, furthermore, the additional debt will be our ultimate undoing. Republicans are correct to say that the stimulus had few offsetting revenues and blew yet another enormous hole in the budget deficit. They did not make this argument, however, when our country decided to wage two decade-long wars abroad while simultaneously reducing taxes. But the reality of the unfunded stimulus expense exists. So the question remains: Did the stimulus work?

Both Democrats and Republicans point to FDR’s New Deal to answer this question historically. Republicans take the short view that FDR’s programs had little effect on the nation’s economy as the economy double-dipped in 1937. Democrats take the long view that this date coincided with the Roosevelt administration’s decision to back off federal spending and that a resurgence of federal funding ultimately mitigated the decline. There is general consensus that the tipping point that put the nation back on a path toward prosperity was World War II and the wartime economy. Despite this philosophical harmony, Republicans are still loath to admit that the top marginal income tax rate in 1941 was 81 percent, and by 1945 it was 94 percent. That’s how you pay for war.

So while it can be instructive to look back and apply historical lessons to the present, the picture is incomplete because the circumstances are vastly different. To examine the effect the stimulus had on the economy, it’s necessary to understand the economic philosophy behind it while parsing the figures. The conflict between Democrats and Republicans on this issue is largely a debate over the economic theories of two men: Milton Friedman and John Maynard Keynes.

Born in 1912, Friedman would come to be recognized as one of the great economic minds of the modern era. A Nobel Prize-winning economist who taught at the University of Chicago, Friedman held a wide range of core libertarian views and is often credited as one of the principals of the ideology. Throughout his career he argued the benefits of monetary policy and the folly of fiscal policy. Think TARP versus stimulus. In other words, maneuvering liquidity through the system in a centralized fashion was an appropriate measure of government intervention whereas providing government funding for programs via the Treasury was not.

This is not to say that Friedman would have approved of President George W. Bush’s TARP “bailout” of the banks (Friedman died in 2006 before the financial world came unraveled) or even of the Federal Reserve itself. In a perfect world, Friedman would have abolished the Federal Reserve altogether, which is a common rallying cry among Libertarians who also promote a return to the gold standard no matter how economically or politically impossible this would be. Again, the theory being that private markets would be more efficient, accurate and apolitical with respect to pegging the value of currency in real time.

But if Friedman’s economic policies have dominated the years since Gerald Ford was in the White House, it was English economist John Maynard Keynes who dominated the years prior, beginning in 1933 with his paper, “The Means to Prosperity.” Keynes’ recommendations for dealing with recessions and depressions would fundamentally alter Europe and America’s approach to the Great Depression. Keynes’ first assumption, considered revolutionary at the time, was called the “paradox of thrift.” Simply put, if businesses and consumers collectively tighten their belts during difficult times, the effect would be a downward spiral in the demand for goods and services.

Under Keynes’ theory, this self-perpetuating loop of plunging demand would necessarily result in a decline of both profitability and confidence. Keynes believed the antidote was government spending. Specifically, the further the funding went down the economic chain the better. Businesses and consumers, those with the greatest need for liquidity, were likely to circulate government funds through the economy faster than institutions such as banks that might be more prone to hold onto liquidity. The net result, due to what Keynes coined the “multiplier effect,” would be spending that works its way through the normal economic channels via the purchase of goods and services at the consumer level, labor and equipment at the business level.

A great deal of attention is paid to the short-term effects of spending on infrastructure as large public works projects during the Depression became the most visible and lasting testaments to Keynesian economy theory during the Roosevelt era. But many Keynesian theorists argue that these types of projects also contribute to the long-term health of the economy, with the best possible result being partnership with, and ultimately transition to, private industry. A great example of this is the Tennessee Valley Authority (TVA) established under FDR, which ultimately became a private utility. But long-term infrastructure projects don’t have the immediate effect of direct government spending at the bottom levels of the economy.

Larry Summers, the notoriously prickly economist, has had a remarkable career serving in both the Clinton and Obama administrations (Summers was Treasury Secretary briefly under Clinton) and as one-time president of Harvard University. Tapped to join Obama’s transition team, he is credited with determining the strategy for bailing out the faltering American economy. In his book, The New New Deal, Time magazine senior staffer Michael Grunwald writes, “At Brookings, [Summers] proposed a technocratic approach to Keynesian stimulus that has dominated the debate ever since. A stimulus package, he argued, should be timely, targeted, and temporary.”

This guiding philosophy would result in a three-tiered approach to Obama’s stimulus. The first would be accomplished through tax breaks for the vast majority of Americans. The second would be through entitlement spending such as extending unemployment benefits and prolonging health insurance coverage for laid-off workers. It also provided direct aid to states to help plug budget gaps to prevent the layoffs of teachers and reductions to Medicaid. The third was investment in programs deemed “shovel-ready.”

This last point is somewhat controversial because few, if any, infrastructure projects can begin work at a moment’s notice. But on this, Obama was clear that funds would be found to target America’s aging infrastructure and invest in new projects on the drawing board, even if their timetables weren’t immediate.

Keynesian economists such as Joseph Stiglitz quickly lauded Obama’s plan, though most of them  believed the $787 billion package was only about half of what was required to properly address the crisis. Another Keynes disciple, Nobel Prize-winning economist and columnist for The New York Times, Paul Krugman, has been extremely vocal that the stimulus, while swift and necessary, was “woefully inadequate.” Nearly everyone on Obama’s transition team would concur, but the thought of a stimulus package topping $1 trillion was politically radioactive. Besides, almost everyone involved at the time hoped for a second crack at stimulus funding in Obama’s first term. And while most of Obama’s political advisors understood how difficult this would be, no one could have predicted how hard the Republican Party was preparing to fight against any new proposal from the Democrats.

Perhaps the most astounding revelation in Grunwald’s book is how Obama’s inner circle — especially the most cynical among them like the explosive Rahm Emanuel or acerbic Larry Summers — understood that the package was political suicide. In fact, they were prescient in this regard as the stimulus provided the freshly-routed GOP with a rallying cry and a strategy to take back control of the House of Representatives during the 2010 mid-term elections.

In reality, the Recovery Act did more than just pump taxpayer dollars temporarily into the economy and drive up the national debt. It put federal funds into the hands of agencies and consumers who had the ability to spend them in a timely fashion. This came in the form of tax cuts for the middle class, an extension of unemployment benefits and medical coverage, state aid to support endangered Medicaid programs, healthcare and student loans. It was the ultimate return to Keynesian philosophy.

Opposition to blanket stimulus funding isn’t fundamentally misguided. After all, no government can sustain unlimited subsidies without someday having to recoup these costs. This brings us to the second half of Keynes’ theory. If the government is supposed to aid a recovery during a recession by pouring funds through the economy, then it must likewise increase revenue during the boom times that follow. There are only two ways to do this: raise taxes or cut spending. Or both. The problem is that we haven’t meaningfully done either in decades.

While cutting spending is very much a part of the Republican narrative, increasing taxes is anything but. In a perfect world of no government intervention or regulation, the markets would simply figure it out and restore balance because recessions and depressions are, after all, bad for business in the long run. Having said that, this type of “boom and bust” behavior creates great potential short-term benefits, as volatility is a savvy investor’s best friend. But Keynes never meant to eliminate the boom and bust nature of the economy. His policies were intended to mitigate the depths and the peaks.

Shedding all government spending and letting the markets work it out was precisely the advice President Hoover received from Treasury Secretary Andrew Mellon after the market crashed in 1929. Hoover didn’t actually follow his advice. Instead, he set in motion many of the public works projects and federal spending plans continued by Franklin Roosevelt. The Depression was hung around Hoover’s neck in part because he chose to portray an aura of calm and confidence even though Rome was indeed burning.

Hoover fought vigorously behind the scenes for some of the programs that would make Roosevelt one of the most popular presidents of all time. Hoover’s biggest problem was actually Roosevelt. Because Hoover rarely took the opportunity to point out that the economy collapsed as a result of his predecessor’s policies and then failed to defend himself against Roosevelt’s subsequent attacks, he became unfairly synonymous with the Great Depression. This little bit of history was not lost on Obama.

Today, comparisons abound between the circumstances surrounding both the Great Depression and the (dare I say) current depression. Politicians and historians will forever debate their similarities and how they both arrived. But there are also current comparisons we can draw relating to Keynes’ paradox. In Europe today, where austerity is the mainstay of the economic recovery attempt, unemployment remains untenably high. In both Spain and Greece it hovers around a bruising 24 percent. Before the stimulus, the US economy shed 800,000 jobs in January of 2009 and GDP growth was negative. Since the beginning of 2010 America has added an average of 143,000 jobs every month and experienced positive GDP growth, although everyone acknowledges it’s a slog. But this kind of forward momentum amply defends the stimulus.

Beyond facts and figures, be sure to listen closely for what you cannot hear. Perhaps the most incredible aspect of the stimulus is the lack of fraud associated with the spending. The oversight has been so rigorous and the process so astoundingly transparent that almost no one is crying foul at the veracity of the disbursements. Instead, opponents gnash their teeth and shout at the rain about Solyndra, the failed California solar plant manufacturer, at every turn. And that’s about it. Forget the fact that the mechanism for funding Solyndra was established in 2005 and Solyndra was selected to participate in the program in 2007; if opponents of the stimulus want to make this their Alamo, so be it. Out of nearly $800 billion invested, one failed solar manufacturer is all you’ve got? Even Bain Capital would have relished this level of success.

So, did it work? I side with Krugman. The answer is that the stimulus package was a good start, but it should have been bigger. Nearly all of those involved in creating the stimulus recognized at the time that it would prevent catastrophe but fall short of prosperity. Unfortunately, our politics are so poisoned today that uttering the phrase, “should’ve been bigger,” is truly the third rail. There is no more room for a reasoned debate in America. But the fact remains that without the stimulus several state budgets would have collapsed, all but bankrupting Medicaid, far more roads and bridges would have fallen further into disrepair, middle-class Americans would have had less in each paycheck and millions more people would have fallen off of the unemployment rolls and into poverty.

All told, Ryan’s claims of  “patronage” and “cronyism” fell apart the moment he lobbied to divert federal funds to his district; Romney’s claim that the stimulus was “careless” underscores either a deep misunderstanding of the shrewd, tactical and successful nature of the program or a further illustration of his belief that no person, corporation or municipality deserves financial support, even under the most severe economic circumstances. Romney’s recent disdainful comments about “47 percent of Americans” may give weight to the latter sentiment, which should give us all pause.

Capitalism and Regulation Are Not Mutually Exclusive

Deregulation became the mantra of free market capitalists who view all government intervention into the markets as a complete affront to our democratic principles, as though the two are somehow connected. It sounded sexy and even seemed to be working for a while until our speculative chickens came home to roost and laid rotten eggs in all of our coops.

John Boehner NY Economic Club
House Speaker John Boehner speaking in New York

Osama bin Laden’s body has barely come to rest on the ocean floor and the Republicans are back in attack mode against the Obama administration. Speaker of the House John Boehner is taking his spending-cut crusade on parade again in the run-up to the vote to raise the nation’s debt ceiling. In doing so the Ohio Republican is not only acquiescing to the clamorous Tea Party faction of the GOP but to the special interests that define their politics.

The debt ceiling debate is the ultimate diversion from the more genuine debate that should be taking place in Congress. This is not to say it is without merit. But like so many political disputes, our politicians are intent on examining the symptoms of a crisis instead of deconstructing the root causes. The fact is our enormous national debt is a result of fighting two costly, protracted wars abroad and bailing out hooligans on Wall Street who engineered the greatest heist in American history. The problem is the GOP wants to fix everything else they deem to be wrong with the system without addressing these two key components of our indebtedness. 

Boehner and company are continuing the charade begun when Ronald Reagan was king and Alan Greenspan was God. Deregulation became the mantra of free market capitalists who view all government intervention into the markets as a complete affront to our democratic principles, as though the two are somehow connected. It sounded sexy and even seemed to be working for a while until our speculative chickens came home to roost and laid rotten eggs in all of our coops.

In a speech earlier this week to the Economic Club of New York, Boehner returned to the key conservative talking points, excoriating Washington for pandering to banks that are too big to fail without addressing the deregulatory fever in the Beltway that created this situation. He criticizes instead the government’s bailout response, saying that our “debt mostly borrowed from foreign investors caused a further erosion in the economic confidence of America and increased uncertainty for millions of private sector job creators.” If you asked these so-called job creators why they aren’t adding more people to the payroll or taking on more capital projects, I highly doubt the resounding answer would be America’s debt. Under President Reagan our debt skyrocketed but these same job creators doubled-down and invested in America, making the logical question: Why not now? Boehner went on to claim that the “massive borrowing and spending by the Treasury Department crowded out private investment by American business of all sizes.” That’s funny. I could have sworn that by keeping interest rates at practically zero, business owners would have been encouraged to borrow and invest in their companies with alacrity. 

This is where the GOP message gets into funky territory. You would be hard-pressed to find an economist who would deny that pumping bailout funds through the financial sector prevented a total collapse of our economic system. Everyone won in the short run. But because Congress was too cowardly to fix the structural regulatory issues in the banking industry, the big winner overall was Wall Street. The bailout allowed the banks to partake in riskless arbitrage (borrowing money at no cost and investing it in guaranteed government bonds for example) and bypass the private sector and individuals in desperate need of lending support. It’s one of the primary reasons the Dow Jones Industrial Average continues to rise despite a still-flagging economy; the dollars are flowing at the top with very little pulsing through the rest of the economy. But the concept of arbitrage is largely lost on Americans and our politicians are reluctant to talk about it in a meaningful way, instead choosing to focus on the national debt.

What’s worse is that the banks have presumably used a good portion of this money to invest in opaque investments that have artificially created crises in the agriculture and energy sectors. I say “presumably” because no one can really be sure where some of this money is being invested because the regulatory environment is still so broken and corrupt that the funds are impossible to track directly. It’s the pricing and behavior of these markets that gives them away. Energy supply is at an all-time high, demand is still perilously low yet the markets are soaring because unknown companies are pouring billions of dollars through small commodities exchanges and wildly impacting the prices of these investments. This phenomenon translates directly into high gasoline prices and rising food costs, thereby suppressing the recovery and obliterating household savings. Here again Boehner changes the subject, suggesting that the Obama administration is somehow keeping “energy resources under lock and key.” Further, he accuses Democrats in Congress of “creating more uncertainty for those who create American jobs” by raising “the specter of higher taxes.” Another direct attempt to divert the conversation from reality. After all, didn’t we just extend the Bush-era tax cuts? And weren’t these the same tax cuts that were in place prior to and during the economic meltdown?

This year Forbes added 214 new billionaires to its list of the world’s richest people. That’s up from 97 new billionaires last year. In perusing the list of the richest Americans, it’s interesting to note where the wealth of those whom Boehner touts as “job creators” is derived. Hedge funds, investing, oil, pipelines, retail, chemicals and pharmaceuticals are the industries that dominate the roster. Most of these companies employ relatively few people compared to the billionaire industrialists of old. No infrastructure companies, few manufacturing companies, and a handful of high-tech companies appear on this list. And of the ones that do appear, most of them manufacture overseas. I guess in Boehner’s world a job created in Bangalore is equal to one created in Scranton. What many of these industries do have in common is that they represent the vast majority of campaign contributors to people like John Boehner.

So it begs the question: Who is Boehner trying to protect? In his New York address he repeatedly refers to the “arrogance of Washington” even though that’s where he’s been working since 1990. Arrogance is not trying to pay for past transgressions by taxing those who devastated the economy. Arrogance is cutting the government’s primary funding source via an extension of the Bush-era tax cuts and attacking entitlement programs instead of the regulatory issues that brought down America’s entire economic system.

Where the White House fails is by indulging in debates over the debt ceiling and releasing oil reserves while bickering over entitlements. Our economy cannot, will not, improve until our elected officials have the courage to restore sanity to the marketplace by re-implementing the regulations that properly governed debt, equity and commodities trading for decades.

In recent testimony to the Congressional Oversight Panel on the impact of the TARP, Columbia University professor and former Clinton advisor and chief economist of the World Bank Joseph Stiglitz argued that “we have not repaired our banking system, and indeed, with the enhanced moral hazard and concentration in the financial sector, the economy remains very much at risk.”

Joseph Stiglitz

These arguments are nothing new to the Nobel Prize-winning economist, who in 2008 warned of the enduring negative consequences of deregulation. At a hearing held back then by the House Committee on Financial Services, Stiglitz invoked Adam Smith, saying that “even he recognized that unregulated markets will try to restrict competition, and without strong competition markets will not be efficient.” One of Stiglitz’s solutions to this is to restore transparency to investments and the markets themselves by restricting “banks’ dealing with criminals, unregulated and non-transparent hedge funds, and off-shore banks that do not conform to regulatory and accounting standard of our highly regulation financial entities.” For emphasis, he notes that “we have shown that we can do this when we want, when terrorism is the issue.”

He’s right in every aspect. This is economic terrorism that Americans are unwittingly enabling by allowing politicians in Washington to skirt the issue of financial reform and to skip tighter regulations in favor of continuing tax breaks, cutting spending on infrastructure and demonizing programs that provide security for the sick, the aged and the unemployed.

Yet no matter how often people of Stiglitz’s ilk provide testimony, no one on these committees either understands or cares what is being offered. I suppose that just because we call them “hearings” doesn’t mean anyone is necessarily listening.