No More Cheating: Restoring the Rule of Law in Financial Markets

By Simon Johnson

The political debate about finance in the US is often cast as markets versus regulation, as if “more regulation” means the efficiency of private sector decisions will necessarily be impeded or distorted. But this is the wrong way to think about the real policy choices that – like it or not – are now being made. The question is actually what kind of markets do you want: fair and well-functioning, with widely shared benefits; or deceptive, dangerous, and favoring just a relatively few powerful people?

In a speech on Wednesday, Senator Elizabeth Warren (D., MA) laid out a vision for better financial markets. This is not a left-wing or pro-big government agenda. Senator Warren’s proposals are, first and foremost, pro-market. She wants – and we should all want – financial firms and markets that work for customers, that encourage innovation, and that do not build up massive risks which can threaten the financial system and bring down the economy.

Senator Warren puts forward two main sets of proposals. The first is to more strongly discourage the deception of customers. This is hard to argue against. Some parts of the financial sector are well-run, providing essential services at reasonable prices and with sound ethics throughout. Other parts of finance have drifted, frankly, into deceiving people – on fees, on risks, on terms and conditions – as a primary source of profits. We don’t allow this kind of cheating in the non-financial sector and we shouldn’t allow it in finance either.

The unfortunate and indisputable truth is that our rule-making and law-enforcement agencies completely fell asleep prior to 2008 with regard to protecting borrowers and even depositors against predation. Even worse, since the financial crisis, the Securities and Exchange Commission, the Justice Department, and the Federal Reserve Board of Governors proved hard or near impossible to awake from this slumber.

We need simple, clear rules that ensure transparency and full disclosure in all financial transactions – and we need to enforce those rules. This is what was done with regard to securities markets after the debacle of the early 1930s. The Consumer Financial Protection Bureau (CFPB), for which Senator Warren worked long and hard, has started down a sensible road towards smarter and simpler regulation. The CFPB needs to go further – including on auto loans – and for this it needs renewed political support.

The second proposal is to end the greatest cheat of all – the implicit subsidies received by the largest financial institutions, structured so as to encourage excessive and irresponsible risk-taking. These consequences of these subsidies have already caused massive macroeconomic damage – this is why our crisis in 2008-09 was so severe and the recovery so slow. Yet we have made painfully little progress towards really ending the problems associated with some very large financial firms – and their debts – being viewed by markets and policymakers as being too big to fail.

If you could visit a casino with the prospect of keeping all your winnings, while your losses would be partially or completely paid by someone else, how much would you gamble? You would bet a huge amount – presumably as much as the house allows. Big banks are run by smart, rational people. The incentives they face – which themselves have worked long and hard to retain – are not acceptable from a broader social point of view.

Senator Warren wants to cut through the complex morass of modern regulation. Force the biggest half dozen banks to become smaller, simpler, and more transparent. Limit the tax deductibility of interest for large highly leveraged financial institutions, so they choose to fund themselves with relatively more equity and less debt.

And reform the emergency powers of the Federal Reserve – to strengthen its ability to deal with genuine disasters while also ensuring an appropriate level of democratic review and control. The days of secretive bailouts should end.

Senator Warren’s main point is this:

“without some basic rules and accountability, financial markets don’t work. People get ripped off, risk-taking explodes, and the markets blow up. That’s just an empirical fact – clearly observable in 1929 and again in 2008.”

Of course you cannot outlaw all cheating or prevent all forms of future potential macroeconomic problems. But the legislative framework and presidential priorities matter. This is demonstrated by what happened since the 1980s, when the deregulation of finance distorted incentives in very ways that proved very dangerous.

We can choose now to make markets function better. Put in place simpler, clearer rules and enforce them.

This is a completely centrist agenda. As a result, there is real potential here for bipartisan policy initiatives – and there are senators on both sides of the aisle who show signs of being willing to go to bat for exactly these kinds of sensible pro-market ideas.

All presidential candidates, Republican and Democrat, would be smart to embrace this agenda.

25 responses to “No More Cheating: Restoring the Rule of Law in Financial Markets

  1. There was an observation made and shared with, on the Thom Hardman Show earlier today: Essentially, Republicans are much more adept at messaging than they are on the substance; while Democrats are weak on messaging but have the advantage with their voters when it comes to substance.

    I don’t mean to continue the rantings of Hillary’s presidential run but I should clarify…. it’s not so much her message, but more to the point, the problem is the messenger, namely Hillary. Even her video announcement and her subsequent visit to an Iowa Community lacked the passion and even a sense of entitlement her supporters have pressed upon her.

    She has a problem with credibility, and not being trustworthy according to the latest polling. Not being trustworthy because of……”Republicans, meanwhile, accused Clinton of hypocrisy by noting her hefty speaking fees — in some cases paid for by firms of the CEOs she blasted — and her ties to Democratic super PACs. Not to mention the fact that she has a hedge fund manager in the family….”It’s pretty rich for Hillary Clinton to lament big money in politics while her campaign chairman and SuperPAC allies are busy courting secretive liberal billionaires in San Francisco,” said Republican National Committee spokesman Michael Short.”

    Exhibit A:
    http://www.wsj.com/articles/hillary-clintons-complex-corporate-ties-1424403002

    Exhibit B:
    http://www.bloomberg.com/news/articles/2014-02-01/walton-benioff-join-billionaires-backing-clinton-in-2016

    Exhibit C:
    http://www.cnn.com/2015/04/06/opinions/zelizer-democrats-vs-wall-street/index.html

    So don’t expect even a meniscal tax on derivative trading, any time soon.

    Hillary doesn’t have any immediate nor long-term plan to rail against (nor provide legislating solutions) regarding; TBTF, breaking them up, campaign reform, income disparity, job growth, trade, etc.

    Not being trustworthy because of……… she wants to have a better future for her grandchild but says nothing for the 4,600 U.S. soldiers, who went to war in Iraq, would never be able to realize the same future themselves.

    We [in the third-person] are not objecting to Mrs. Clinton wealth, but what we’re objecting to is her and the Democratic Party’s sell-out to Wall Street’s highest bidders in order to get legislation favoring their corporate bottom line.

    One Percenters don’t throw millions at the politicians and expect NOTHING in return!

    It will be Bush/Walker, or a Walker/Rubio presidential run, Clinton/Webb or Clinton/O’Malley. And contrary to the wishful thinking of some party insiders, Senator Warren will not be considered for V.P., nor for Secretary of Treasury if Hillary becomes the first woman president.

  2. Simon Johnson writes: “Senator Elizabeth Warren (D., MA) proposed to end the greatest cheat of all – the implicit subsidies received by the largest financial institutions, structured so as to encourage excessive and irresponsible risk-taking. These consequences of these subsidies have already caused massive macroeconomic damage – this is why our crisis in 2008-09 was so severe and the recovery so slow”

    “Excessive risk-taking”? No way Jose!

    It was, and is, excessive regulatory risk-aversion, something that completely distorts the allocation of bank credit.

    Regulators allowed banks to leverage their equity, and “the implicit subsidies received”, much more with assets perceived as absolutely safe than with assets perceived as risky.

    That allowed banks to earn much higher risk-adjusted returns on equity on assets perceived as absolutely safe, than on assets perceived as risky, like SMEs and entrepreneurs.

    And that of course caused excessive exposures to what is ex ante perceived as absolutely safe, like loans or investments to sovereigns and members of the AAArisktocracy, and much too little exposure to what is perceived as risky, like to SMEs and entrepreneurs.

    I am all for regulators, but please, save us from well-intentioned nannies interfering with the banks, enough is enough. This, the Home of the Brave… was it not built upon true risk-taking?

  3. “Of course you cannot outlaw all cheating or prevent all forms of future potential macroeconomic problems.”

    Regulations are vital but they need to be coupled with monetary policy tools that don’t encourage financialization and instability becuase banks are always looking for ways around laws and its actually hard to identify speculation and borderline unpoductive activities.

    The main cause of financial excess in monetary policy is lowering rates excessively or asset purchases because excessive lower rates grow the financial sector and non productive activities.

    Helicopter drops of central bank emoney (Hel-e) drops would be a more effective tool for achieving central bank targets. Unlike interest rate targeting a lack of demand for credit or high unemployment should not diminish the effectiveness of hel-e drops in generating AD. High unemployment actually makes hel-e drops more effective in generating spending because liquidity preference of unemployed people is very low. Studies of tax rebates which occurred in 2001 and 2008 in the US and Australia show that helicopter drops are effective in generating stimulus. 20 to 40% of the money received in the tax rebate of 2001 was spent in the quarter when the money was received and approximately another third in the following quarter (Johnson et al. 2006), only non-durable spending was included in this study. 12-30% of the 2008 tax rebate was spent on nondurable goods within three months of payment receipt, and a significant amount more on durable goods resulting in 50-90% of the payments spent (Parker et al. 2013). The tax rebate in Australia in 2009 resulted in 40% spent in the quarter of receipt (Leigh, 2012).

    No zero lower bound on hel-e’s.

    As a result of the central bank more effectively being able to achieve its targets investment will increase because investment depends on stability and economic growth. As a result of higher and more stable growth speculative activities should decline because on a comparative basis investment is more attractive.

    Hel-e’s will maintain a higher interest rate than an interest rate targeting regime for any level of stimulus generated because hel-e’s stimulate through increased monetary wealth, not a lower interest rate. In any specific economic environment a higher rate will stimulate credit and financial sector growth less than a lower interest rate. As a result of employing hel-e drops as a policy tool, credit creation and financialization will be increased less than under a rate targeting regime. Less credit will grow the financial sector less and draw less resources away from rest of economy, increasing real GDP growth. Lower credit growth will also improve stability because excessive credit contributes to the generation of bubbles.

  4. Thank you Mr Johnson for this important commentary and agree with you that the right honorable Senator Warren’s proposals are, sound, just and necessary. We divide however on the dim hope of any bipartisan support. Too many in the gop, (and some socalled democrats) are far too entrenched in blind rabid psychopathic support, shielding, and advancement of the predatorclass. Naked unbridled greed and an insatiatlble thirst for power are the only drivers for these ruthless shaitans – I mean politicians, (and like the fiends – I mean – den of vipers and thieves – I mean smart people in finance they promote and protect,) – hold absolutely zero interest in the socalled ruleoflaw, or the best interests of the American people, or even America. Imponderable wealth and the resulting power and immunities gleaned by the accumulation of imponderable wealth are the primary, overriding, abiding concerns and aims. In this ecosystem – the socalled financial – that thing called the constitution is “just a goddamn piece of paper. The American people they ruthlessly pilfer and abuse are nothing but votes and digits. And there is no ruleoflaw! The financial system is a predatorclass owned and controlled criminal cartel, perpetrating systemic criminal activity, and peopled with ruthless psychopathic criminals. The socalled government has been purchased and commandeered by these predatorclass criminals. They are no different than the criminal leaders of any drug cartel, mafia, or global criminal organization.

    Agree with Mrs Warren and you on the simplicity, fairness and soundness of these proposals for financial reform. But would add that the criminals responsible for the systemic criminal activity and the massive destruction caused must be punished with the same merciless ruthlessness they exhibit, promote, and practice.

    In a world where there are no laws, – there are no laws for anyone predatorclass biiiiaaatches

  5. Criminal activity! Systemic fraud, collusion, tax evasion, bribery, Ponzi schemes! Crimes! Crimes that poor and middleclass Americans would be ruthlessly punished for, – all their assets seized, sentenced to longterm prison, their families ruined and hurled into poverty – and somehow the den of vipers and thieves, psychopathic criminals, are immunized or “slapped on the wrist” for systemic criminal activity of epic proportions. Unless and until these shaitans, – I mean psychopathic criminals – I mean den of vipers and thieves – I mean smart people on wallstreet are punished for their systemic criminal activity – there will be no justice, there will be no hope, and their will be no end to the predatorclass systemic criminality and ruthless savage marauding of America and America’s poor and middleclass. History proves that whenever fartoofew rape and pillage fartoomany – the end is always violent revolt, pitchforks and guillotines, or worse. A society where one minute and select group, klan, clique, coterie, or cartel rules with immunity and impunity – and the rest of the 99.9% are ruthlessly subjugated, silenced, and oppressed is the definition of fascism. The predatorclass must pay for their crimes just like the rest of us, or there is no law. In a world where there are no laws – there are no laws for anyone predatorclass biiiiiaaatches!

  6. Wwithout campaign finance reform the chances of achieving what he and Sen Warren advocate are slim and none.

  7. Senator Warren expressed exactly what I have been trying to tell my co-workers. I hope he stays focused on this topic and really steadfast whilst still in the Senate.

  8. Per Kurowski: “I am all for regulators, but please, save us from well-intentioned nannies interfering with the banks, enough is enough. This, the Home of the Brave… was it not built upon true risk-taking?”

    Yes it was – not on TBTF guarantees that eliminate risk.

    Break ’em up, make shadow banking transparent, and implement a reasonable transaction tax. And while we’re at it, insure that electronic trading is not rigged.

  9. The low equity requirements for what was or is ex ante perceived risk served as the most potent growth hormones for the TBTF

  10. Guest blogger, open/close quote…..

    “I agree with everything you said except that I won’t vote for Hillary even if it means that it increases the chances of a Republican President. As far as I am concerned, we are screwed either way…whether it is a Republican President or a Democratic President. And that goes for many of the Congress Members too! Both Parties are owned by the ruling elite! The Dems feed us false hope when we are at the end of the noose that is hanging us all. It keeps us from struggling too much by pandering the false belief that we can possibility fight back against the ruling elite by continuing to put a Dem into office (their Republicans in Democrat’s clothing). What they fear the most is the total overthrow of their corrupt, rotten system that pretends to be democratic. They fear that the people might force them to open their coffers to save those of us who have been ruthlessly exploited by their corrupt system. The worst thing they fear is that we will confiscate everything they have…perhaps, Communist style.

    Remember Boris Pasternak’s novel Doctor Zhivago…when the wealthy doctor Yuri Zhivago, had to share his huge house with many vagrant people after the Communist takeover? There is power in numbers and all it would take would be for the people to be so ticked off that they won’t fall for that fake democracy system, the ruling elite created, and rebel against the corrupt system. And you don’t rebel by constantly playing within the rules created by those who created the corrupt game to start with.

    It’s really not democratic when it is rigged in favor of those who have all the money and power and who owns the two major political parties. The mistake would be to fall for the ruse of voting for the least evil … the Repubs or the Dems. We’ll never break out of our chains if we keep playing the same crooked game. We have to do something radically different for any real change to occur!

    Think of it this way…if a Republican wins…that would put us that much closer to a massive rebellion. If a Democrat wins….it will do what it was designed to do…[continue to]feed us false hope… delaying the inevitable revolution. But, by that time we will be too submissive and weak to be effective at rebellion. Yes, they are counting on that, too! They’ll play us until we won’t buy it anymore but by then by then we will be totally enslaved with no way out. But, I believe that just a very high reaction by the people, whether it be voting for a third party candidate (which would be better) or not voting at all will be indicators to the ruling elite that the people will [would] no long be fooled by their rigged two party system.

    I certainly don’t want to see a massive revolution which is why I believe one way to revolt, safely, and legally, is by a massive shift at the polls to a third party candidate. It will show the ruling elite that we are not going to be fooled by their rigged game anymore and if they don’t straighten up and fly right they will see a future of having to share their properties and money with everyone (and I’m not talking about just a mere increase in taxes…I’m talking about making those rich bastards completely destitute, thrown into prison, or worse).”

  11. “Bernanke told the New York Times that he was sensitive to public anxiety about the “revolving door” between Wall Street and Washington.”

    “He chose Citadel, in part, because the fund is not regulated by the Federal Reserve and his role would not involve any lobbying. Bernanke told the newspaper that he had declined offers from banks.”

    “Chicago-based Citadel, founded in 1990, is a multi-strategy hedge fund and ranks as one of the industry’s biggest. Bernanke will receive an annual fee, which he did not disclose, but will neither own a stake nor receive a bonus based on the fund’s performance.””

    Ref: http://www.huffingtonpost.com/2015/04/16/bernanke-citadel_n_7076444.html?utm_hp_ref=business

  12. Ref: http://www.nytimes.com/2015/04/17/us/politics/another-clinton-now-vows-to-fix-political-finance-system.html?ref=politics&_r=0

    Once again, a Clinton is poised to benefit: Democrats expect the super PACs backing Mrs. Clinton to raise as much as $300 million, on top of the $1 billion or more she is likely to raise for her campaign and the Democratic National Committee. And once again a Clinton has pledged to be the agent of change.

    In Iowa this week, in the first public appearances of her second bid for president, Hillary Rodham Clinton said that one of her top priorities was to “fix our dysfunctional political system and get unaccountable money out of it once and for all, even if it takes a constitutional amendment.”

    Even some Republican candidates and contenders have called for addressing the impact of Citizens United, or have proposed limits on some kinds of campaign contributions. Some reformers argue that voters are so disgusted with Washington that Mrs. Clinton must present them with a plan to fix corruption before they will embrace any further vision she may have for a more activist government.

    “That one of Clinton’s first policy proposals in her campaign is to address our broken campaign finance system speaks volumes about the role money in politics will play in the 2016 campaign,” said David Donnelly, president of Every Voice, a group favoring tighter rules for political money.
    Some of the biggest big-money opponents are themselves big donors. Mrs. Clinton’s announcement in Iowa came just a day after the Democracy Alliance, a leading club of left-leaning donors, announced that curbing organized money in politics would be one of its top funding priorities for the next five years.

    But while Mrs. Clinton criticizes “unaccountable money” in politics, her family foundation has raised tens of millions of dollars outside the campaign system from foreign governments and corporations seeking access and influence in Washington. Her campaign’s new chief counsel was also the co-author of a congressional deal last year that will allow wealthy donors to begin giving more than $1 million every election cycle to each party’s national committees.

    Embracing the outrage over campaign money also knocks away one more argument for a challenger to run against Mrs. Clinton on the left. Senator Elizabeth Warren of Massachusetts, who many liberals hope will challenge her in the primaries, has been among the Democratic Party’s fiercest critics of Citizens United and the Supreme Court’s subsequent decisions deregulating campaign fund-raising.

    Still, Lawrence Lessig, a political theorist at Harvard and founder of a super PAC that has tried — but so far mostly failed — to turn dismay over Citizens United into a winning political issue, said he welcomed Mrs. Clinton’s help. “There is no hypocrisy in saying you can run a campaign according to the rules of the road while also saying that you want to change the system,” he said.

    As a candidate back then, Mr. Obama called himself “an advocate for public financing of campaigns” and pledged to take part in the post-Watergate federal financing system, which offered candidates a dollop of taxpayer cash in the general election in exchange for a pledge not to raise and spend other money.

    But after he won the nomination, Mr. Obama reneged, withdrawing from the system and helping to usher in the era of the billion-dollar presidential bid. He promised to pursue a newer, more robust public financing system, but never did.

    “History tells us we have never had a president who has aggressively pushed for reforming the campaign finance system,” said Fred Wertheimer, a longtime advocate of tighter campaign finance rules and president of Democracy 21.

  13. Just don’t privatize the profits and socialize the loses, we can’t take that anymore.

  14. @Per – you wrote, in part, that “Regulators allowed banks to leverage their equity, and “the implicit subsidies received”, much more with assets perceived as absolutely safe than with assets perceived as risky.”

    What “equity” did the banks have other than the distribution of EARNED WEALTH among labor that was deposited in their bank – you know, that FIAT $$$$ distributed as debt…

    Listening to you and others, banksters never BELIEVED (just like a religious belief in things unseen and unprovable) that any individual ever had ownership of anything that they bought with FIAT $$$$ that banksters gave them as pay for work.

    And they used our deposited money – which I am assuming is NOT the equity you are talking about? – to buy computers that would be programmed with algorithms (derivatives) that would perform the alchemy of the ages – turning “what is yours is now mine” at nanosecond speed. In other words, “they” used MY SAVINGS to wipe out all MY EQUITY.

    BTW, I am running for President of the USA again, myself. I have just as good of a shot at winning as Hillary does if Hillary has the same kind of funding for her campaign as I have :-) Wonder how Hillary is going to handle getting on her knee in homage to the GLOBAL War, Drug and Slave Lords since “full-throated” support ain’t enough to be their Prez….will torturers deign to put a little satin pillow on the floor for her grandmother knee…?

  15. How about starting a “crowd funding” project for modernizing our infrastructure? Blow the dust off the project tucked away in favor of WWII that would link water supplies across the country since there will ALWAYS be too much rain in one place and a drought in another?

    See how freakin’ DELUSIONAL political science has become – wild speculation and vicious gossip 24/7 by yappers on TV – hiding the real ACTIONS of the predator class against USA citizens is….?

  16. woof woof – squirrel! squirrel!

    Global economy built on destroying every EVOLUTIONARY and experientially earned CULTURE – when was the planet NOT diverse?! – with REVOLUTION…

    http://www.huffingtonpost.com/2015/04/17/obama-fast-track_n_7088912.html

  17. Was the rule of law meant to be “revolutionary”?

  18. @Annie would vote for you....

    Annie – 1, Clinton – 0

  19. ....this Dog don't hunt.

    “It’s modelled on the 17th-18th century phrase “that cock won’t fight”. In the days of cock-fighting, a cock that wouldn’t fight when out into the pit was a natural metaphor for a plan or theory that simply wouldn’t work.”

  20. Don’t even think about it, rat-faced Walker….Riddle me this….for 40 years, USA has been taking fed and SS taxes out of my pay, claiming it was for my own good because they were taking care of it for me – INVESTING it, right?

    During that time, the USA economy GREW to the point where 480 super-genius USA capitalists are worth a collective total of 2.08 TRILLION….

    while and Annie is being prepared for the bad news that she did NOT save enough for her “retirement” (taking 50K from 50 million to pay the War Lords was NOT enough??!!) and that there is no $$$$ in her SS fund.

    ARE YOU KIDDING ME???!!!!

    So if I can PROVE, mathematically with ALGORITHMS, that if I was not skinned alive for 40 years – if I had that tax money for my own personal “investments” choices, that I would NOT be one of the 480 chosen one trillionaires…???

    BOOM!

    Case closed….

    Liars thieves and murderers…..

  21. Jesse’s Café Américain
    http://jessescrossroadscafe.blogspot.com/2015/04/simon-johnson-restoring-rule-of-law-in.html
    Category: audacious oligarchy, deep capture, failure to reform, financial reform

    “Crime, once exposed, has no refuge but in audacity.”

    Tacitus

    With campaign finance reform, the need to reform the financial markets is one of the greatest social policy issues of our time.

    Simon Johnson is one of the few ‘name’ economists who recognizes this and is willing to talk about it.

    There is a bitter campaign being waged in the think tanks and the media against reform. The campaign is similar to that which was waged for almost a decade to overturn Glass-Steagall.

    Getting rid of bad government by eliminating all government is just giving the real perpetrators what they wish. What we need are the kind of rules and regulation that Simon Johnson and Elizabeth Warren talk about here.

    It is the kind of reform that Franklin Roosevelt worked to put into place that lasted for almost 70 years, until the forces of Wall Street were able to guile the people into handing over their pursestrings to them once again.

    What is discouraging is the deep involvement of both sides of the aisle in the Congress in enabling this sad corruption of the markets and the financial system– for money. And in particular how the moral and intellectual processes of the state have become corrupted by the power of the moneyed interests.

    To put a fine point on it, once the professional classes become cowed or corrupt, reform of the process through systemic means is exceptionally difficult. What we have is deep capture and the credibility trap reinforcing the worst of the abuses through a series of punishments and rewards.

    And what may be particularly galling is when insiders who are at the locus of the corruption, like our recent crop of presidential candidates on both sides, talk about how they will change things, while the money is still flowing through their hands, and the spin is flowing out of their mouths.

    And alas, even some of the reformers seem more interested in getting some of their own power and money than in promoting real reform. We have a problem, not at the periphery of our actions, but at the moral root of our thinking.

    I have always enjoyed listening to economist Robert Johnson’s brief excerpt below, because it highlights the very crux of the problem. Unless some of the well to do and the professional classes shake off the lure of big money and the credibility trap, and start acting responsibly, this is going to end very badly.

    And make no mistake, there are some of the self-deluded and their servants who see that turmoil that may come as just another opportunity for their looting and a rise to greater power as they energize the mob for their own ends. But they forget the great lesson of history, that once the madness is unleashed, it tends to serve none but itself.

    Why should anyone stop lying and cheating, when they are so profitable under the rule of the modern gods of the market, power and money? Why stop at all? And then comes the inescapable agent of the downfall of excess, Nemesis, with all that it implies.

    I have no illusions. Given the state of our condition, ninety nine percent of those who read this will go on and do absolutely nothing differently for themselves or their people. But it is in the moral one percent that there is some hope for peaceful, evolutionary change.

    The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

    No More Cheating: Restoring the Rule of Law in Financial Markets
    By Simon Johnson

    The political debate about finance in the US is often cast as markets versus regulation, as if “more regulation” means the efficiency of private sector decisions will necessarily be impeded or distorted. But this is the wrong way to think about the real policy choices that – like it or not – are now being made. The question is actually what kind of markets do you want: fair and well-functioning, with widely shared benefits; or deceptive, dangerous, and favoring just a relatively few powerful people?

    In a speech on Wednesday, Senator Elizabeth Warren (D., MA) laid out a vision for better financial markets. This is not a left-wing or pro-big government agenda. Senator Warren’s proposals are, first and foremost, pro-market. She wants – and we should all want – financial firms and markets that work for customers, that encourage innovation, and that do not build up massive risks which can threaten the financial system and bring down the economy.

    Senator Warren puts forward two main sets of proposals. The first is to more strongly discourage the deception of customers. This is hard to argue against. Some parts of the financial sector are well-run, providing essential services at reasonable prices and with sound ethics throughout. Other parts of finance have drifted, frankly, into deceiving people – on fees, on risks, on terms and conditions – as a primary source of profits. We don’t allow this kind of cheating in the non-financial sector and we shouldn’t allow it in finance either.

    “The problem of the last three decades is not the ‘vicissitudes of the marketplace,’ but rather deliberate actions by the government to redistribute income from the rest of us to the one percent. This pattern of government action shows up in all areas of government policy.”

    Dean Baker

    “Most of them became wealthy by being well connected and crooked. And they are creating a society in which they can commit hugely damaging economic crimes with impunity, and in which only children of the wealthy have the opportunity to become successful. That’s what I have a problem with. And I think most people agree with me.”

    Charles Ferguson, Predator Nation

    Posted by Jesse at 10:24 AM Email ThisBlogThis!Share to TwitterShare to FacebookShare to Pinterest
    Category: audacious oligarchy, deep capture, failure to reform, financial reform

  22. Jesse’s Café Américain………….Deep Capture
    http://jessescrossroadscafe.blogspot.com/search/label/deep%20capture
    “The more people rationalize cheating, the more it becomes a culture of dishonesty. And that can become a vicious, downward cycle. Because suddenly, if everyone else is cheating, you feel a need to cheat, too.”

    Stephen Covey, The Speed of Trust

    “The greatest crimes of human history are made possible by the most colorless human beings. They are the careerists. The bureaucrats. The cynics. They do the little chores that make vast, complicated systems of exploitation and death a reality… And they do not ask questions.”

    Chris Hedges, The Careerists

  23. Noble thoughts from some trusted friends of a long time respected Baseline blogger, thanks for the links Bruce.
    I would argue that today’s problems stem from poor tax and fiscal policy which is closer to a death by a thousand cuts, rather than one outstanding blunder. These policy’s over time evolve into a greed for money and power which in order to sustain itself must reproduce on a more frequent scale, the turning over of generations every 20 years rather than 30 come to mind when possible extinction gets involved. So policy’s are set in stone and made into law that achieve just that, and then promoted by the same tools, (or people), who have been mislead but trained to do so.
    No my friends, this can not be fixed by words alone, and the solution is unthinkable to the same ones whom created the death by the thousand cuts world, it will be settled though,and rather soon, but by a God that most people don’t believe in, so until then, rock on.