The Speech For Which We Have Been Waiting

By Simon Johnson

For nearly two years now we have waited for a speech.  We need a simple speech and a direct speech – most of all a political speech – about what exactly happened to our financial system, and therefore to our economy, and what we must do to make sure it can never happen again.

President George W. Bush apparently did not consider giving such a speech, and Secretary Paulson could never talk in this way.  President Obama seemed, at some moments, close to making things clear – when he talked on Wall Street in September and, most notably, when he launched the Volcker Rules in January.  But President Obama has always come up short on the prescriptive part – i.e., what we need to do – and his implementation people still move as if there were lead weights in their shoes.

Without a definitive speech, there is no political reference point, there is no convergence in the debate, and there is not even any clarity regarding what we should be arguing about.  Without the right kind of speech, there are just many lobbyists working the corridors and a lot of backroom deals that most people do not understand – by design.

Tomorrow, hopefully, we should finally get the speech.  Not – sadly – from the White House, not from anyone in the executive branch, and not even from within the Senate Banking Committee (although Senators Merkley and Levin took a big step today), but rather on the floor of the Senate.

On Thursday, Senator Ted Kaufman (D., DE) is due to deliver a strong blow to the overly powerful and unproductively mighty within our financial sector.  He will say, according to what is now on his website,

  1. Excessive deregulation allowed big finance to get out of control from the 1980s – but particularly during and after the 1990s.  This led directly to the economic catastrophe in 2007-08.
  2. We need to modernize and apply the same general principles that were behind the Glass-Steagall, i.e., separating “boring” but essential commercial banking (running payments, offering deposits-with-insurance, etc) from “risky” other forms of financial activity
  3. We need size caps on the biggest banks in our financial system, preferably as a percent of GDP.
  4. We should tighten capital requirements substantially.
  5. And we must regulate derivatives more tightly – on this issue, he likes at least some of the steps being pushed by Gary Gensler at the CFTC.

To be sure, a speech is not legislation.  And, as yet, this is just one senator’s point of view.  But because the administration so completely lost the narrative regarding what happened and why, there is now a free, open, and fair competition to explain what we need to do.

The lobbyists will still prevail on this round.  But a big debate around the nature of our financial system is exactly what we need. 

People who want to defend finance as-is now need come out of the woodwork.  Senator Kaufman has set a very high standard.  If you wish to oppose this agenda, speak clearly and in public about why we should not pursue exactly what the senator proposes.

If opponents of reform do not come out and argue the merits of their case, people will reasonably and increasingly infer that Senator Kaufman and his allies are right on all the substance. 

Reform is blocked by a perverse combination of bankrupt ideology and deep-pocketed corporate interests.  The only way to break through is to bring a lot of sunshine into the true affairs of finance – including by speeches like the one we will hear tomorrow.

41 thoughts on “The Speech For Which We Have Been Waiting

  1. I wonder how long before Sen. Kaufman meets with an “accident”.

    Oh, wait, that would require his proposals to get more than zero traction. Never mind.

  2. The power of one voice starts many voices. The “Tea Party” is the smoking gun. The smoking gun that gives a great recent example that the Washington elite fear the most.

    People standing up to what has been the status quo. Big Banks and deep movements trying to set the agenda for what seems to be a “One World Order”. This is the student in me that seems to have the professors getting through some of their theories…

    No, it seems this senator, as Simon Johnson has written and brought to our attention; holds the same potential as a well known representatives like (D-Rep) of Ohio, Marcy Kaptur.

    It only takes one to start and the rest can join in later as they fear less…

    Far-fetched, Not Anymore!
    James Gornick

  3. I’ll bet it leads to nothing.

    Every two years, there’s an election, and the pols are always looking for campaign money and do-nothing jobs w/ big pay if they lose.

  4. You think healthcare is hard
    Do you know why banks own the political system?
    It is because US actually when bankrupt in 1970
    due to Vietnam War and Peak Oil. So system
    where money was tied to debt. So money is actually
    created by the banks. remember Federal Reserve was
    create in early 1900s because J. P. Morgan had rescued
    US in 1890s.

    So banks will continue to dictate the terms as long
    as the system is setup like this. Federal Reserve is
    not even a federal agency yet people keep talking about
    it regulating consumer protection.
    Statistics have been cooked since the 80s. inflation, unemployment have no basis in reality.

    I could go on and on…

  5. In addition to his speech, I wonder if is it possible to have Senator Kaufman ask a simple question or two of the big bank CEO’s?

    Please ask them what they contribute to the production of the food, clothing, shelter, transportation, energy & health care they consume every day. Or, alternately ask the CEO’s what they are doing to repay those who work all day every work day to produce all these things for them. Shouldn’t be too difficult for these big time big shots. I’d sure like to see their answers to these simple questions in writing.

    Also, are they aware that dollars, aka money only has meaning if there is something to consume?

  6. Ted Kaufman can afford to alienate the banking industry — he was appointed to fill Biden’s seat, and as far as I know is not running for election.

  7. Mr. Johnson wrote:

    “Reform is blocked by a perverse combination of bankrupt ideology and deep-pocketed corporate interests. The only way to break through is to bring a lot of sunshine into the true affairs of finance – including by speeches like the one we will hear tomorrow.”

    Oscar Wilde wrote:

    “Missionaries are going to reform the world whether it wants to or not.”

    (1854 – 1900)

  8. It is interesting how the recent financial crisis has caused such a wide-spread effect. The few businesses that planned for such a case are thriving in this market. I have been reading about scenario planning and it fascinates me. I remember reading about Shell Oil being the pioneers, thinking about specific trends that could affect their business on a global basis. It is a really interesting approach to planning out future events. The scenarios may not occur but they are still worth planning for. Companies do budgets, and they are never right but the process yields interesting results.

    For some interesting thoughts on what might happen in the future I recommend this article:

    More info can also be found at this blog:

  9. The problem with fixing the economy is a lot like the problem with fixing global warming. Things have reached the point of no return. It’s too late to turn the Titanic around, the iceberg is in our path and we are about to go down, regardless. “Free market” capitalism has reached the point where it is not only too big to fail, but too big to control, and certainly too big to regulate. At the first sign that someone with real power is about to do something meaningful to forestall a future collapse, the entire edifice will instantly crumble before our eyes, that very day. And the politicians know that, either consciously or unconsciously. Which is the deep reason why we aren’t seeing meaningful reform, and are not likely to see it, ever.

    The good news is that there is really nothing wrong with our economy, when evaluated in terms of resources, both natural and human. What has failed is our financial system, not our economy. If we would be willing to let go of the financial system, i.e., to toss overboard all the ballast produced by all the billionaires and millionaires and their huge stores of paper wealth, the ship of state would be that much lighter and more maneuverable and we might be able to turn things around after all. Wittgenstein tells the story of a monkey who put his hand into a jar to get a nut and finds he can’t pull it out again without loosening his grip on that nut. Unless we are willing to loosen our grip on our “free market” fantasy, we will never be free.

  10. Ironic (or subversive?) that this senator is from Delaware, the state that advertises lax regulation and low taxes so that corporations will (nominally) incorporate in their state even though their headquarters are really elsewhere.

  11. (Some other) salient points offered by the Senator from Delaware:

    1) I start by asking a simple question: Given that deregulation caused the crisis, why don’t we go back to the statutory and regulatory frameworks of the past that were proven successes in ensuring financial stability?

    2) Congress needs to draw hard lines that provide fundamental systemic reforms, the very kind of protections we had under Glass-Steagall.

    3) Unfortunately, the government’s response to the financial meltdown has only made the industry bigger, more concentrated and more complex.

    4) Following the crisis, the U.S. mega banks left standing have even more dominant positions. Take the multi-trillion-dollar market for OTC derivatives. The five largest banks control 95 percent of that market.

    5) MIT professor Simon Johnson and James Kwak, a researcher at Yale Law School, estimate that the six largest U.S. banks now have total assets in excess of 63 percent of our overall GDP. Only 15 years ago, the six largest U.S. banks had assets equal to 17 percent of GDP.

    6) Unfortunately, the current reform proposals focus more on reorganizing and consolidating our regulatory infrastructure, which does nothing to address the most basic issue in the banking industry.

    ) Rather than pass the buck to a reshuffled regulatory deck, which will still be forced to oversee banks that former FDIC Chairman Bill Isaac describes as “too big to manage, and too big to regulate,” we must draw hard statutory lines between banks and investment houses.

    8) Massive institutions that combine traditional commercial banking and investment banking are rife with conflicts and are too large and complex to be effectively managed.

    9) I would also stress that a leverage limit without breaking up the biggest banks will have little effect.

    10) Finally, we need to address the fundamental conflicts of interest on Wall Street. While separating commercial banking from investment banking is a critical step, there are still inherent conflicts within the modern investment banking model.

    11) The sad reality is that regulators had substantial powers, but chose to abdicate their responsibilities.

    12) As long as we have “too big to fail” institutions, we will continue to go through what Professor Johnson and Peter Boone of the London School of Economics have termed “doomsday” cycles of booms, busts and bailouts, a so-called “doom loop” as Andrew Haldane, who is responsible for financial stability at the Bank of England.
    President Obama and the Administration are right now in the policy weeds with healthcare, limping to the “finish line.” When he signs the healthcare bill into legislation, President Obama is said to then focus on the economy (including financial reform) but the president’s support for anything that is close to what the Delaware Senator alluded to above, will probably be tepid, at best. If the president is sincere about his own proposal for CFPA, then he should take his own talking points as he recently did in Philadelphia, and creating the kind of “urgency of now” he so famously gave during his campaigning days of 2008.

  12. TO: Simon Johnson (author of this article)

    You are wrong, Kaufman IS introducing this as LEGISLATION…
    1. the Legislation is titled:
    The Protect our Recovery through Oversight of Proprietary Trading Act (or PROP Trading Act)

    2. Co-sponsors are:
    Senators Jeff Merkley (D-OR), Carl Levin (D-MI), Sherrod Brown (D-OH) and Jeanne Shaheen (D-NH),

    3. Introduced:
    Wednesday (YESTERDAY) to help prevent taxpayer bailouts of financial firms by limiting high-risk speculation, also known as proprietary trading.

    It would be nice if you corrected the comment in your article where you incorrectly claim & imply he is not introducing legislation when HE IS.

  13. It is hard to put the toothpaste back into the tube. Wall $treet has created tens of trillions of AAA rated kaka as a result of the elimination of Glass-Steagall. Who will absorb that kaka if we restire GS?

  14. Beth, returning to prior regulation is something that I have thought about. Since Congress probably does not have the ability to do so after the fact, I propose the following: Legislation that mandates a return to the former law for any change in the law that does not produce the effect promised under the new law within a 2-3 time frame. This would occur automatically, similar to a sunset clause. The old law would remain in effect for 2-3 years before it could be changed by Congress.

  15. There are two ways this can go:

    1. He makes the speech, then compromises everything in the legislation either to appease his own party leaders, or because he feels the financial (see re-election) squeeze by the lobbiests.

    2. He gets public traction and support, holds televised hearings and becomes what Harry Truman became during WWII by taking on war profiteers – a common man hero, face of the party, and 2016 presidential candidate.

    I root for the latter, but the recent past would make me bet on the former.

  16. He is not running for election to Sen. Biden’s former seat. As I understand it, Kaufman is a long time friend/staffer to Joe Biden and was appointed to the seat when Biden assumed the Vice Presidency. The running assumption all along was that Kaufman (who I beleive is in his early 70s) was only a seat-warmer for the Vice President’s son (and Delaware attorney general) Beau, who would run in ’10.

    But then Beau Biden stunned the political world by announcing he would not in fact run, a decision many believe was impacted both by the generally crummy outlook for Dems this year and the announcement by wildly popular Delaware former(?) governor Mike Castle that he would run for the Republican nomination. Castle is now seen as the presumptive favorite to win the seat in November.

    So Kaufman has absolutely nothing to lose and perhaps (could it be possible?) he is taking this public stand because he truly believes in what he is saying, all of which I happen to agree with. But let’s see what actually happens to any legislation he actually introduces. But I completely agree with Simon—good stuff and about damned time.

  17. The mess the USA is in is that power is in the hands of the capitalists while the President, Congress and government gave up this power to the unelected in this so-called democracy. Americans are choking on the daily baloney fed to them through the media and power holders. No wonder France has had several revolutions.

  18. Saw this on CSPAN this morning (oh the joys of hotel captivity) and it was a great piece. Followed up by the same old droning about health care and the deficit and “the American people” from Republicans. Including Ensign now. Can’t believe that guy is still in office. Oh our elected representatives…

  19. We ARE willing to let go. It’s the financial oligarchs who buy politicians that aren’t.

  20. No, this is the speech for which we have been waiting. You are very far behind the times:


    John RYSKAMP
    1677 Arch Street
    Berkeley, California 94709
    (510) 848-6898

    This essay is about my role in the new Constitutional regime in the United States, the “maintenance” regime. It is the fourth Constitutional regime we have had, and it succeeds the scrutiny regime.

    The Eminent Domain Revolt, which I wrote in 2007, was, as some readers have noticed, a stealth new Constitutional regime for the United States. It wasn’t so much a study of the surprising upsurge in opposition to eminent domain, as it was a presentation of what is now known as the “maintenance” regime using the anti-eminent domain movement as a focus.

    And although it is not apparent in the book, it was in the course of writing the study that the maintenance regime, the successor to the West Coast Hotel v. Parrish (1937) “scrutiny” regime, was born. I had gone into the study concerned about the movement’s view of the facts of any given eminent domain action. What, for example, was the point of view of the proper level of scrutiny for housing, which is so often seized in eminent domain actions? Did opponents of eminent domain oppose it because they felt housing enjoyed a higher level of scrutiny than that provided in Lindsey v. Normet (1972)? If so, on what basis?

    And what, in general, was the view of the movement toward the supposed distinction made in the two paramount policy-oriented Supreme Cases—West Coast and U.S. v. Carolene Products (1938)—toward the distinction between “social” facts—which supposedly could not be litigated by individuals because it would inevitably lead the Court to take a legislative, supervisorial role—and
    “political” facts (such as speech), which could be litigated by individuals?

    Well, you can read in the book what the members of the movement thought of the right to housing. The important thing for me was that the facts kept bumping up against the supposed rationale for the scrutiny regime. They showed that the scrutiny regime actually read all facts OUT of litigation. Everyone knew that, because facts such as housing enjoyed only minimum scrutiny, the consequence was that individuals had very few rights, and could introduce very few facts relating to housing qua housing.

    The entire regime tended toward removing policymaking from the political system ENTIRELY. Proponents of the regime had said that “social” facts could be vindicated through the ballot box. Indeed, Laurence Tribe said this was one of the justifications for the decision in Kelo v. Connecticut. However, it just didn’t turn out that way. Among other factors, the proliferation of “districts,” “zones” and other political entities, having no elected representatives but vast powers and often no procedure for adjudicating claims against them, were sucking power away from the political system. So no matter how you voted, it seemed to make less and less difference in America.

    Also, although issues relating to eminent domain were supposed to be resolved in the political system—in a flurry of eminent domain reform—that didn’t happen either. Reform legislation showed all the anomalies present in pre-reform eminent domain legislation.

    What was wrong? It was this question which sent me back to the cases. I would have to go back over the manuscript to see at exactly what point I noticed that the Court in West Coast, Carolene Products and even Berman v. Parker (1954), all explicitly used the word “maintenance” to describe why the Court was upholding the particular policy. But there it was—Constitutionality of policy was NOT grounded on some inherent discretion in the political system. It was grounded in the policy’s “maintenance” of facts. But did this preserve the distinction between “social” and “political” facts? That is, how did the notion of “maintenance” emerge from a consideration of facts, such that it told us something about the way the Court views facts?

    To answer these questions, I had to revisit settled questions, and delve into these “old” cases, and even pre-scrutiny regime cases. Legal historians had warned again and again that there had been a “proto-scrutiny regime” before the West Coast cases, and that indeed, West Coast Hotel, far from being the “switch in time that saved nine,” was simply a further development of a long-standing trend toward allowing more policy interference in the society.

    What were the terms of that interference? That, it seemed to me, was where the jurisprudence had lost its way. Even in a case such as Berman, in which “maintenance” was used, the policy still provided for the destruction of housing—for the benefit of housing!! What? There was obviously a disconnect. The Court had obviously lost the thread of its own ideas.

    It seems to me now that the Court lost its sense of the facts. While granting itself, for example, that housing was an important fact, it didn’t know quite why, and so it didn’t know why that determination should not be left to the political system. In that case, it didn’t see why there should be heightened individually enforceable rights in housing.

    “Maintenance”—fine. Even, “the law maintains important facts.” But what facts, and why?

    To me, the Court missed the test in West Virginia v. Barnette, which removed exercises of religion from the political system and gave power over them, to the individual. It is worth quoting the Court’s informal statement of the test for an “important” fact, since it became the basis for the formal multi-pronged test of an “important” fact (and indeed, perhaps the problem all along is that the Barnette Court left its test in an informal state). Here is what it said about the fact known as an “exercise of religion”:

    “Struggles to coerce uniformity of sentiment in support of some end thought essential to their time and country have been waged by many good as well as by evil men. Nationalism is a relatively recent phenomenon but at other times and places the ends have been racial or territorial security, support of a dynasty or regime, and particular plans for saving souls. As first and moderate methods to attain unity have failed, those bent on its accomplishment must resort to an ever-increasing severity….As governmental pressure toward unity becomes greater, so strife becomes more bitter as to whose unity it shall be. Probably no deeper division of our people could proceed from any provocation than from finding it necessary to choose what doctrine and whose program public educational officials shall compel youth to unite in embracing. Ultimate futility of such attempts to compel coherence is the lesson of every such effort from the Roman drive to stamp out Christianity as a disturber of its pagan unity, the Inquisition, as a means to religious and dynastic unity, the Siberian exiles as a means to Russian unity, down to the fast failing efforts of our present totalitarian enemies. Those who begin coercive elimination of dissent soon find themselves exterminating dissenters. Compulsory unification of opinion achieves only the unanimity of the graveyard. It seems trite but necessary to say that the First Amendment to our Constitution was designed to avoid these ends by avoiding these beginnings.”

    From this, the “important” facts test emerged. An important fact is

    1. a fact of human experience
    2. which history demonstrates
    3. is unaffected by attempts to affect it.

    This is what “strict scrutiny” (the policy must be “narrowly tailored to achieve a compelling interest) applies to important facts: it provides the individual the right to PREVENT ATTEMPTS. This, according to Barnette, is the essence of an individually enforceable right.

    But what, in fact, is “maintenance?” This is where the proto-scrutiny regime cases were illuminating. Great weight on the “community” was placed in the case which upheld residential zoning, the pre-scrutiny regime case of Euclid v. Ambler (1926):

    “[T]he exclusion of buildings devoted to business, trade, etc., from residential districts bears a rational relation to the health and safety of the community. Some of the grounds for this conclusion are promotion of the health and security from injury of children and others by separating dwelling houses from territory devoted to trade and industry; suppression and prevention of disorder; facilitating the extinguishment of fires and the enforcement of street traffic regulations and other general welfare ordinances; aiding the health and safety of the community by excluding from residential areas the confusion and danger of fire, contagion and disorder which, in greater or less degree, attach to the location of stores, shops and factories. Another ground is that the construction and repair of streets may be rendered easier and less expensive by confining the greater part of the heavy traffic to the streets where business is carried on.”

    Note the many things here which comprise the “community”: housing, health, “disorder” (!), transportation, even “business.” Here there is no sense that the legislature was free to find that zoning did NOT maintain these facts. There is some test the Court has ALREADY applied, to find that these tests have to be maintained, and that zoning is one way to maintain them. Nor does that the legislature may NOT zone, that is, that is, that it may find some other way to maintain the facts.

    Instead, what the Court is looking for is the way in which government is ITSELF an important fact. How does GOVERNMENT maintain important facts. The Court only allows zoning because it does so. It subjects zoning to this strict test. It is not an early example of deference to legislative intent.

    It should be noted that always, in the back of the Court’s mind, is Marbury v. Madison (1803), which seems to be about whether an individual may get a government commission or not. The reality is that the case is about establishing that government is itself an important fact (and indeed Justice Marshall makes it clear that even if there a law is passed to require that the litigant receive his commission, that law itself is liable to be adjudicated on the basis that it violates government as an individaully enforceable right).

    When the Euclid Court goes on to cite with approval the upholding of zoning in Illinois, it quotes a passage from the opinion which also uses the term “community”:

    “The harmless may sometimes be brought within the regulation or prohibition in order to abate or destroy the harmful. The segregation of industries commercial pursuits and dwellings to particular districts in a city, when exercised reasonably, may bear a rational relation to the health, morals, safety and general welfare of the community. The establishment of such districts or zones may, among other things, prevent congestion of population, secure quiet residence districts, expedite local transportation, and facilitate the suppression of disorder, the extinguishment of fires, and the enforcement of traffic and sanitary regulations. The danger of fire and the risk of contagion are often lessened by the exclusion of stores and factories from areas devoted to residences, and, in consequence, the safety and health of the community may he promoted.”

    Thus, the Court sees a complex, entirely objective interaction of important facts—that is the “community.” No deference to the legislature is implied, nor could there be any distinction between “social” and “political” facts when government as a fact is enmeshed in the “community.”

    From this and other opinions, it seemed to me that the Court had used its “important facts” test beginning as early as Marbury (and earlier, in the view of some commentators) and that, informally, it had concluded that five facts are important facts: liberty, maintenance, housing, education and medical care. That is, it had found that these are not goals, not ideals, and not “social” or “political” facts, but instead, these are enduring facts of human experience. For want of a better term, to be human is to “exercise” maintenance, to “exercise” housing, medical care, education and liberty.

    So instead of a loose political system in which individuals exercise remote control over facts by virtue of the politicians they elect, the Court actually see the Constitution as a finely tuned, complex machine in which everything affects everything else.

    This extends to facts which are not “important.” For example, clearly the West Coast hotel feels that, not only is the minimum wage law an indicium of income (that it maintains income), but also that income is an indicium or aspect of some other fact. Look at the language of the State of Washington minimum wage law upheld in West Coast. This language was quoted approvingly by the Court:

    “Sec. 2. It shall be unlawful to employ women or minors in any industry or occupation within the State of Washington under conditions of labor detrimental to their health or morals; and it shall be unlawful to employ women workers in any industry within the State of Washington at wages which are not adequate for their maintenance.

    Sec. 3. There is hereby created a commission to be known as the ‘Industrial Welfare Commission’ for the State of Washington, to establish such standards of wages and conditions of labor for women and minors employed within the State of Washington, as shall be held hereunder to be reasonable and not detrimental to health and morals, and which shall be sufficient for the decent maintenance of women.”

    Look at the way the Court invokes the earlier jurisprudence of the “community,” and interrelates “liberty” with the “maintenance” of income, and uses “due process” as a fact, not a goal or ideal. This is the “precedence” of factual analysis, in which the standard is, what in FACT, is the better argument, not, are there enough facts here to allow the political system to get away with this policy:

    “Liberty under the Constitution is thus necessarily subject to the restraints of due process, and regulation which is reasonable in relation to its subject and is adopted in the interests of the community is due process. This essential limitation of liberty in general governs freedom of contract in particular. More than twenty-five years ago we set forth the applicable principle in these words, after referring to the cases where the liberty guaranteed by the Fourteenth Amendment had been broadly described. ‘But it was recognized in the cases cited, as in many others, that freedom of contract is a qualified, and not an absolute, right. There is no absolute freedom to do as one wills or to contract as one chooses. The guaranty of liberty does not withdraw from legislative supervision that wide department of activity which consists of the making of contracts, or deny to government the power to provide restrictive safeguards. Liberty implies the absence of arbitrary restraint, not immunity from reasonable regulations and prohibitions imposed in the interests of the community.’ Chicago, Burlington & Quincy R. Co. v. McGuire, 219 U.S. 549, 565. This power under the Constitution to restrict freedom of contract has had many illustrations.”

    To me, it was clear that income interrelated with some other fact, with which employment as also related. And facts, already determined by the Court to be important, such as housing, also interrelated with this “other” fact.

    This “other” fact became “maintenance” in the New Bill of Rights. It was clear that a very major part of the Court’s notion of due process, is approaching the question, what in fact is the particular important fact (for example, housing)? by examining what it is in the contemplation of OTHER facts. That is, housing is in part defined as the role housing plays in the fact of income, the fact of liberty, and so on.

    Thus, the question how does the law maintain important facts? was answered: through the interrelation of important facts. And the Court made it quite clear that facts which had not been found to be important, nevertheless played an objective role in important facts. This means that under West Coast Hotel and Carolene Products, civil discovery is BROAD, not narrow under the incorrect notion that policy is “rationally related to a legitimate government interest.

    The result was a new Constitutional regime, self-sustaining and articulated—by which I mean, a regime capable of generating its successor, just as, we see, the scrutiny regime generated OUT OF ITS OWN TERMS, the maintenance regime.

    So far, in the United States, implementing the maintenance regime and the New Bill of Rights has largely meant realizing that we have been speaking “prose all our lives.” It has for example, shed new light on the doctrinal process—somewhat murky heretofore—by which the New Jersey Supreme Court, in the Abbott cases, decided that the education provision of the New Jersey Constitution meant that education enjoyed a higher level of scrutiny than minimum scrutiny. (See

    But obviously the process is about much more than, or rather, something else besides, raising the level of scrutiny for facts. That may seem to be the project after such cases as DeShaney, Lindsey and Dandridge. But of course, it can’t be about that, because that view preserves the distinction between “social” and “political” facts. It involves something much more difficult—the social process by which a mass of individuals collectively decide that they have enough evidence to say that a fact is an important fact, and that they are going to assert control over it. There is a tremendous prejudice in favor of the scrutiny regime, in favor of allowing the “general welfare” to prevail as a concept, and the notion that the “general welfare” is for the political system. In short, we still have some way to go to establish that “general welfare” is an important fact (property too, for that matter, although anti-eminent domain sentiment is usually seen as pro-“property rights” sentiment). This is largely because public opinion sees big government as having defeated the liquidationism of Andrew Mellon during the Depression—big government rescued their lives, and keeps their lives going. There is doubt that individually enforceable rights can be the “big stick” to preserve the facts, that big government can be.

    However, the process described in The Eminent Domain Revolt, is the process of a middle class feeling that facts such as housing, are under attack. Opposing eminent domain—even if it did not involve claiming housing as an individually enforceable right—was about preserving housing from assault (many other facts, too). Public opinion revealed itself, as it were, with regard to what it considered facts which needed to be defended, and the role of government in their preservation. And they acted as individuals to defend these facts. They are still doing so.

    Why is this happening now? For sixty years the process of American society was that of establishing suburbia. That establishment was the engine of economic activity. Now suburbia is here, and guess what the issue is? The maintenance of suburbia. There’s that word again—funny how that works out.

    Here is not the place to follow the twists and turns of American public opinion as it moves toward recognizing new important facts and thus, new individually enforceable rights. However, it is what is happening in the United States, and it is how you should interpret every development you observe in this country.

  21. Simon,
    Your point is excellent. Please press your fellow opinion leaders to encourage the Pres. to make The Speech.
    It’s odd he who makes great speeches has not made this speech. And doubly odd, after you’d think he’d learn a lesson from healthcare reform about not getting out front early.
    Hypothesis: His finance-reform experts/gatekeepers Summers&Geithner, those longtime compliant spouses of the Banksters, or in Krugman’s apt capture-metaphor, part of the Banking Borg, are preventing him from making The Speech.
    We are led to believe the Pres. makes information end-runs around his advisors by checking the net. He seemed to get on board with Volcker after other leading voices joined him. Please press your fellow opinion leaders to call for The Speech and include the specific content he needs to say.

  22. Fix the political problem, especially the politics of debt based currency, and the economy will fix itself. Treating the symptoms will not cure the disease.

    This is a political crisis, caused by BOTH the democrats and republicans. The financial and economic problems are merely the symptoms.

  23. The real question is, will his starting point, and any response be given any REAL media time. How many will watch his C-Span presentation, or even a replay of it bound to turn up on YouTube. Since your blog, which is my favorite, by far, gets so little action (compared with many hundreds or thousands of responses on many others that are far less erudite), I will be interested to see if media other than say, Huffington, you, PBS, get involved in this debate. And, just how many ridiculous and unsupportable points will Republicans feed the naive public to counter this rational and even exceptional statement?

  24. This speech, I’m afraid, is a voice in the wilderness, assuming it is on target. “Money speaks louder than words.” The Supreme Court guaranteed that. “Money speaks to the death of democracy.” I said that.

  25. Simon,
    We need George Lakoff the progressive linguist to enter into this debate; we need him to offset Frank Luntz who is funding Orwellian ads on TV in susceptible states like Montana…. stating that financial reform is essentially another bailout. Let us draft Lakoff! I know he’s busy in California with a campaign, but surely he could take a few months for something so important.

  26. Ian:
    I believe you are correct…

    That is why I said “Tea Party” due to whether Democrat, Republican, and/or Independent, they should all fear the “Tea Party”. This holds true for Senator Kaufman if they can’t do the right thing by the American Taxpayer…

  27. I agree. This kind of speech is very much needed as a reference point, but only if it comes from the mouth of the president. Preferably from the three recent presidents, in a joint statement, to give it party-label-free gravitas. This is the financial tsunami, with victims in the millions.

    The speech is not enough. There has to be a credible effort to hold the architects of the debacle accountable, and prosecute fraud as appropriate. Not a witch hunt, not scapegoating, but accountability. Financiers, regulators, even congressional overseers. It is fine to blame the public’s greed, too; but decision-makers who benefited the most should not be able to hide behind that.

    Obama does not want to look backward. He’s wrong. The public will not tolerate the needed austerity measures unless they see some humility, contrition, and punishment for the reckless behavior that blew up the world economy.

  28. Proprietary trading is not necessarily the same as high-risk speculation, and prop trades were not the cause of the economic meltdown. Any bill that does not rein in the outrageous leverage that was (is) allowed on (mostly hidden) transaction and does not propose a different way that the rating agencies are paid will not succeed in sufficient reform of the financial industry to save the taxpayers from having to swallow future bailout costs.

    If we’re going to start sending people to jail over this economic catastrophy, we should start with the CEOs and CFOs of the rating agencies – Moody’s, S&P, etc. If they hadn’t rated the CDO’s AAA, no investor anywhere in the world would have bought the junk.

  29. Hey! Wall Street paid good money for those AAA ratings! Of course, that’s the foundation of our problems. Financial houses can pay for the ratings they want regardless of the shlock factor of the instruments being rated. This MUST change.

  30. Simon Johnson wrote”

    “For nearly two years now we have waited for a speech. We need a simple speech and a direct speech – most of all a political speech – about what exactly happened to our financial system, and therefore to our economy, and what we must do to make sure it can never happen. ”

    Credit Default Swaps: SEC Asks Congress To Regulate Trades Happening ‘In The Dark’

    03/11/10 08:31 PM – Huff Post – excerpt

    WASHINGTON — “The government’s top securities regulator called Thursday for Congress to impose new oversight on financial derivatives, warning that allowing risky instruments like credit default swaps to continue unfettered could bring further economic damage.

    The chairman of the Securities and Exchange Commission, Mary Schapiro, said banks that deal in the swaps must be subject to rigorous requirements for holding capital. They must also conduct their business in accordance with rules and their price information must be transparent, she said.”

  31. Says Simon Johnson, “We need a simple speech and a direct speech – most of all a political speech – about what exactly happened to our financial system, and therefore to our economy, and what we must do to make sure it can never happen again.”

    Amazingly, this statement implies that Mr. Johnson knows “what exactly happened,” and so on. (He wouldn’t recognize the speech in point unless he knew the criteria he names.) Even more amazingly, Johnson goes on to tout Senator Kaufman’s five points–one vague factual claim, four vague desiderata–as “set[ting] a very high standard.”

    I can only infer that very knowledgeable people are very easily pleased.

    The more I study the subject, the more I am convinced that although the capitalists and their academic auxiliaries think they know what they are doing in Act One of an economic tragedy, Act Two always reveals that they did not know, after all. In Act Three the difficulties are hashed out with the omniscience of hindsight and, so assured, everybody is certain that his/her plan is the right one for the future. In the upshot, both winners (their plan is adopted) and losers (not adopted) think they know what is going on, and (surprise!) the whole cycle begins anew.

    I capitalism weren’t so lethal it would be humorous.

  32. I’ve been watching this playout since the bailouts. I’m ashamed of my political apathy prior to that. For the past 2 years, I’ve not only followed the recent “goings on”, but I’ve researched monetary history back to American colonial times. What’s going on today will make much more sense if one has the correct historical context. Not sure why, but I kept many of textbooks and decided to do a little comparison. Our “Financial history” has pretty much been deleted (or was it ever recorded?) in the sanctioned history books. Thanks to the internet and people scanning hard to find books (dare I suppresed?), the who, what, and why, are easier to see through the correct lense. I compare what we are doing to having a window open blowing our papers around and we are trying to snatch the papers out of the air instead of closing the window. The underpinnings of our monetary system are flawed. It’s that simple. You will never see the term “debt based monetary system” in mainstream outlets. However, I finally found one and was pleased.

    If your house were in total shambles, wouldn’t you start from the foundation up?


  33. Today’s crisis is a software crisis not a political crisis. Software is letting businesses that want to cheat get away with a near total absence of accountability relative to that cheating. Many businesses out there are being honest even though they can cheat if they want to. Like any crisis, it only takes a few to wreck the system for everyone else. Software today, as control language, is the brakes and gas peddle on the Prius. The code is bad and needs to be understood and repaired. A proper book-keeping method is 670 years old and not being used today.

  34. It’s a good sign that ordinmary people have finally become angry about the way our country is run. There is much to be angry about. However, we need some other form of Tea Party that actually has a brain. What we don’t need are a bunch of armed, shouting, right-wing lunatics grabbing more press that they deserve.

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