Blinder then argues that we need to reform the banking industry but such reform is in trouble; moreover, if Congress does not enact such regulation, greed will return big time and we shall have future banking crises. In short, he longs for “sensible, comprehensive reform.”
Well, Alan, that’s more drivel than has been produced over the Leno-Conan shake up. Regulation does not affect the level of greed in society for the simple reason that regulation focuses on human externals whereas greed comes from within. The most that regulation can accomplish is to curb behaviors even when one’s greed is insatiable, and that occurs only when the regulation is prudent and is enforced. We shall never get far if our collective discourses on ethics are as flawed as this analysis.
The saddest part of Blinder’s thesis is his blindness to the greed of others, especially that of regulators. Implicit in his assertion is that the business community consists of greedy individuals and there is a need for the pure-of-heart government administrators to intervene and rescue the masses from these villains. Even if his characterization of business were correct, the thesis remains problematic because he omits from discussion the covetousness of Washington denizens.
Admittedly, the greed of politicians and bureaucrats has a different quality from business people, but it is still full-blooded avarice, and it is at least as evil and pernicious as the avarice of business people.
Before we have “sensible, comprehensive financial reform” of the business community, I think a better place to begin is with Washington. Reform is vacuous unless it includes a reform of the reformers. It is clear that various Senators and Representatives were and are shills for Fannie Mae and Freddie Mac and other financial institutions. I don’t know how we reduce the money-and-power linkage between Wall Street and Constitution Avenue, but the folks on Constitution Avenue are hypocrites to regulate Wall Street on the one hand and accept donations and other perquisites with the other.
Also important is the misuse of the budget and financial reporting by Congress. Anybody who does not have the will power to balance a budget has no business in Washington. In today’s world, taxation with representation is no better than yesteryear’s taxation without representation, especially since so much of it is negotiated behind closed doors.
One suggestion—how about an audited set of consolidated financial statements for the U.S. government, including the reporting of all off-balance sheet liabilities? If this was done, I think the general public would be shocked to see the tens of trillions of dollars by which this country is indebted. And for which Congress is responsible—which is why this likely will never be done.
Blinder also makes the mistake of so many statists, presuming that some sort of failure requires a legislative solution. He and his colleagues should examine the failure of the executive branch to enforce the laws. In particular, a number of bank executives committed securities fraud by duping investors to put money into various special purpose vehicles that they knew were going to fail when the subprime market imploded. Blinder—and for that matter, Congress too—should investigate why the SEC and the Justice Department are not aggressively examining these crime scenes and pursuing criminal charges against the bank executives. If they did, not only would the public obtain some sense of justice, but it would realize some satisfaction that future managers would be reluctant to follow suit for some time to come.
Perhaps I should also mention one obvious defect with the legislators: they do not know or comprehend accounting or finance. And their advisers are little better. This lack of knowledge pervades the drafting of legislation and the debates; worse, with so little understanding of the basics, what hope is there that members of Congress or their advisers will grasp the nuances of Wall Street? Any legislation that can be dreamed up by Congress is flawed because of their lack of knowledge of financial economics.
Blinder’s op-ed could be ignored because of its shallowness of thought, except that so many others agree with his characterization of business people as thieves and government officials as white knights. If only they would awaken out of their enchanted dreams!
