Distractions

Commentary By Ron Beasley

What do Abu Ghraib torturer Lynndie England and the AIG traders have in common?  According to Thom Hartmann while the both did something wrong they are distractions.  Lynndie England took the fall for the real culprits - George W. Bush, Dick Cheney, and Donald Rumsfeld.  And the AIG traders?

Like Lynndie England, the brokers at AIG are the small fish. Sure they shouldn't have been doing what they did, and it's insane that they were compensated the way they were. And even worse is the fact that those compensation packages were worked out in September and October of last year by the Bush administration, and that that convenient little fact is almost always ignored by politicians and commentators in their faux populist outrage.

But the real criminals of the AIG mess - and the entire financial meltdown that was set up between 1999 and 2006 and crashed starting in 2007 - were Grover Norquist, Phil and Wendy Graham, Tom Delay, and, sadly, Bill Clinton.

The philosophy that it's possible to bomb people into democracy and torture them into being on our side drove the Bushies. It was wrong, flawed, and frankly insane, and we're paying a huge price for it.

Similarly, the philosophy that playing the game of business and investment without rules (the technical term is Laissez-faire Capitalism) has driven our government since the election of Ronald Reagan, and went on steroids during the last two years of the Clinton administration and throughout the Bush administration. It's equally wrong, flawed, and insane, and we're paying a multi-trillion dollar price for it not unlike we are for the war.

The intellectual forefathers and mothers of the insane conservative economic policies that have brought us to where we are include Ludwig Von Mises, Freidrich Von Hayeck, Milton Friedman, Alan Greenspan, Tom Freidman, Robert Rubin, Larry Summers, and Ayn Rand. Phil and Wendy Gramm pushed through the Gramm/Leach/Bliley Act (which allowed banks to get into the gambling business) and the Commodity Futures Moderinization Act (also known as "the Enron Loophole"), and Bill Clinton merrily signed them into law.

The Obama administration so far has failed to realize the nature of what got us here and seems to think that a few trillion in bailouts and some superficial tweaks will cure the economic ills.  Not so - it will be necessary to completely undo Reaganomics.  Nothing less will do.

Update

Via Matt Yglesia, Simon Johnson knows what need to be done: 

In any case, our top political leadership needs to really sell some version of the following message. We let the banks get out of control and the cost will be enormous; our debt/GDP ratio will in all likelihood rise from around 40% to over 80%. We cannot afford to have the same problem again. We must break the power of banks before they break us all. And if you don’t think banks can do that much damage to economies, just look around outside the United States - the world is full of countries where growth is slowed or distorted by a financial system that becomes too powerful. This is not about tweaking the existing U.S. regulatory system; it is about complete change and - in many senses - turning back the clock to a financial system that was simpler, smaller, and much less dangerous.

And Matt doesn't see the same thing I don't see.

Unfortunately, I thus far see relatively little indication that the administration is thinking along these lines. Instead, they seem to me to be inclined to remain living in a world populated with banks that are “too big to fail” and “too complicated to nationalize” but try to somehow regulate them better. This is, I think, a strategy doomed to failure over the long run.