History is a Cruel Teacher

The Obama administration’s proposed financial reforms which were announced two weeks ago have been viewed by many as lacking the necessary measures to rein in the excesses of Wall Street and prevent future crises of the current one's magnitude.    

One of those skeptics is Les Leopold, author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What we can do about it, who believes that the Obama administration’s proposed reforms lack the teeth to ensure the economy does not fall off the cliff in the future.   

The first problem with the administration’s proposed rule changes is the fact that they do very little to slim down the incredibly bloated financial sector.  Instead of attempting to shift the economy away from its reliance on Wall Street and toward a more stable and industry reliant economy, Obama is simply preserving the status quo.   

“It's still more profitable to produce a fantasy finance derivative than it is to produce a car or any other tangible product in the real economy.  In fact, our economy is totally misshapen …. In 1950 there were about eight manufacturing jobs for every job in the financial sector. Now it's about 1.5 to one.  And it's only getting worse,” he writes at The Huffington Post.   

One of the most obvious problems in the current financial crisis is the emergence of “too big to fail” companies, banks and other entities that have cost American taxpayers trillions of dollars.  Unfortunately, the Obama administration’s regulations would do little to rein in the size of oversized and overleveraged institutions, meaning American taxpayers may have to be there to save the likes of Citigroup or American International Group in the future.   

“It's impossible for the top executives to keep up with hundreds of thousands of employees and trillions in investments,” he writes.  “But bigger always means bigger bucks for the executives. They will again make the money, and still we will have to bail them out when they fail.” 

The Obama regulations also do little to curtail the Wild West of Wall Street: custom-made credit derivatives.  The new rules would do little to regulate these complex and oftentimes extremely risky financial products.  Instead, it would leave the door open for future administrations to basically ignore the entire market as previous administrations have done.   

Nor does the Obama plan seek to solve the problem of wealth concentration in the hands of very few.  In the past, this has led to excessive risk-taking on Wall Street and caused bubbles in the economy that have popped and led to disaster.   

“You can regulate the Wall Street casinos all you want but if there is too much surplus capital around, new casino games and asset bubbles will be created,” Leopold writes. “Demand will create supply.  The casinos were created because we encouraged an enormous amount of wealth to accumulate in the hands of the few.”  

Finally, the regulations are not set up to pay the taxpayers back for their generous investments in a time of need.  One simple way to do that, rein in some of the excesses of Wall Street and promote a seismic shift in the economy away from finance and toward industry, would be to tax all financial transactions.   

“I hope that history will prove me wrong,” Leopold concludes.  “I don't want to see more suffering and I would like the Obama administration to succeed.  But history is a very cruel teacher, especially when we don't listen And right now it is screaming at us to dramatically reduce the size and influence of the financial sector, and to fundamentally address the obscene and systemically dangerous concentration of wealth in too few hands.”

Source The Huffington Post:

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