He is in grave danger of being wrong. Thirty-three years later we find ourselves at the precipice. We are in an economic crisis that is looking so deep and so wide that no one really understands it, and no one knows how to get us out of it. Our leaders have a plan and they are trying to implement it but the going is slow. Will the new law now going into affect slow the fall enough so that we can pull ourselves out of it? The reviews are mixed. There is a lot of debate and shouting on both sides. Can we spend ourselves out of the ditch we're in?
In a word, yes.
The fall into the throes of recession were a result of the "hands off" policies of the Federal Reserve and the Bush Administration, the greed of the investment banking community, and the political plutocrats who preached the virtues of the "free" market. They created a profit generating machine of immense proportions and managed to create an unbelievable and quite unsustainable level of wealth. The magic moment:
In 1999, Congress passed the Gramm-Leach-Bliley Act, which abolished “all of the significant rules put in place at the time of the Great Depression designed to prevent a repeat.” Specifically, this act “destroyed the Depression-era barrier to the merger of stockbrokers, banks and insurance companies.”
This one act of Congress more than any other has been identified by economists as the push that got the boulder rolling down the hill. It enabled deposit banks to join with their non-deposit brethren in the risky, creative financial wheeling and dealing that caused the bubble that has now finally burst. A truly Big Bang.
A group of economists, including Nobel Prize winner Joseph Stiglitz, slammed Gramm for having a “mentality that doesn’t understand the nature of systemic risks in financial systems,” and said that his bill helped create the current financial turmoil:Economic experts say that Gramm and others are to blame for the current crisis that is shaking Wall Street.
Gramm’s successful effort to pass banking reform laws in 1999, which reduced decades-old regulations separating banking, insurance and brokerage activities, helped to create the current economic crisis.
“As a result, the culture of investment banks was conveyed to commercial banks and everyone got involved in the high-risk gambling mentality. That mentality was core to the problem that we’re facing now,” Stiglitz says.
Or as blogger Tim Westrich wrote in September '08,
The root cause of the financial mess is the hands-off approach towards mortgage and finance markets by the Bush administration, and its lack of action when a disaster was imminent.
The great depression was never supposed to happen again. The last one only faded when we spent enough money to get our selves out of it. All the talk of GNP, spending our grand children's money, stimulus or spending, the American Dream of everyone owning a home, and whose fault all of this is increasingly irrelevant and is completely drowned by the reality that we ARE in a recession that grows deeper by the day.
That first financial advisor advised us, before we bought our first [and only] home 34 years ago, to watch our debt carefully. We should never owe more than 30% of our net worth if we wanted to live conservatively. If we didn't mind a good bit of risk, we would probably be alright at 60%. We chose the 30% and only in the last 10 years have we fallen below that level. The United States is now in debt 65% of it's net worth. Even though we are a wealthy country with unlimited potential and can easily afford to take on more debt to help solve this crisis, this number alone raises a concern. Yet to get out of our last depression, the national debt skyrocketed to 120% of GNP! This incredible spending spree set up our economy for prosperity that lasted 50 years.
The "starve the beast" mentality plus the laissez-faire, tax cuts only, economic policies of creating obscene wealth have brought us to the brink. Ed Kilgore states the case eloquently in this article from 2002.
"Bipartisanship is another name for date rape."
"We are trying to change the tones in the state capitals-and turn them toward bitter nastiness and partisanship."
President Bush loves to talk about his favorite foreign policy doctrine of pre-emption, the radical notion that even in the absence of imminent danger the United States should use force against any nation that might pose a threat down the road. What the president won't admit is that his administration has adopted the same doctrine toward government
--and Democrats --here at home. For conservatives, a government that's not mortgaged to the hilt poses too great a threat of social activism. That's why, in 2001 and again this year, the Bush administration has launched pre-emptive attacks on the national treasury designed to leave the U.S. government so deep in debt it poses no threat to the conservative status quo. Its motto is: Stop government before it can help again.
They've almost gotten away with it but it's always been a "pay me now or pay me later" scenario. Because of the benign neglect of so much of our domestic economy over the past 30 years, and especially in the last 8 it's finally come to time to pay up. Whining doesn't help. Obstructionism doesn't help. Losing courage in the face of crisis doesn't help. Treating the creation of wealth as a religion doesn't help. "All for me and none for all" has had it's time in the light. It's time to rebuild America. All together now... Pull!