So this is Mike Konczal signing off for the week – I’d like to thank James and Simon for giving me the opportunity to guest-blog here. And I’d like to thank all the readers and commenters for sparking discussions and refining my thoughts about many of the issues here.
I want to close on one last note about where we, as a country, need to go from here. As a longtime fan of The Baseline Scenario, I read that there’s a project here to show the way in which capture by the financial industry has taken place in this country; through regulatory capture, through social networks and connections, etc.
There’s another element to it as well, and that’s what we as a country expect our government to be able to do about it. I want to point out this netroots nation video of Chris Hayes, an editor at The Nation, talking about The New Deal versus today (5m20s start):
Think about FDIC, how would we design FDIC today?…What we would do is, we wouldn’t set up an independent government agency which works very well, has worked smoothly, has prevented bank runs, since the bad old days of bank runs…we wouldn’t do that today. The banks would be like ‘what? you are just going to step into this market?’ What we’d do today if we were designing FDIC is we’d choose a bunch of the banks and we’d subsidize them insuring other banks…
The Home Ownership Loan Corporation…we have a lot of foreclosures, a lot of people underwater on mortgages. What are we doing? We are subsidizing the lenders with public dollars and telling them ‘if we give you guys some money, will you go help those people?’ And surprise, surprise, they have not really gotten their asses to do it. Now the Home Ownership Loan Corporation was faced with the same exact problem…and it went out and bought the mortgages and directly re-negotiated the terms of the mortgages, and it was very, very successful.
This is a massive conceptual problem.
I find this fascinating because I completely agree that, if we were to encounter bank runs for the first time today, this is how we’d try to set up FDIC. FDIC is an example of a government program that works, and the banks-insuring-one-another-with-public-money is exactly the kind of operation we’d expect to fail. I also find it fascinating because I believe part of what happened in this crisis is that we started a banking system in the capital markets, a ‘shadow bank system’ if you will, that collapsed in a new 21st century style bank run, and going forward we need to find a way to regulate it properly to make sure it doesn’t happen again (here’s interview I did with Perry Mehrling about it).
It’s one thing to identify the problem – finding the will to conceptualize the problems, and begin to fix them, is the other half of the solving the problem. And that is what this country needs more of, less hoping that the problems will fix themselves if we shove enough public money to private parties, and more of working to find the solutions ourselves.
Thanks for the great week all!