Monday, August 04, 2008

Paul Ryan's Reform Misses The Mark

Paul Ryan completely missed the mark with his opinion piece about the need to reform Freddie Mac and Fannie Mae in last week’s Standard Press. Although perhaps that was intentional since what really needs reform is the Republican Party. The problems faced by these two institutions are not the result of internal flaws, but rather the deeply flawed and greed motivated deregulation agenda of the GOPsters. You see in 1999 the Glass-Steagall Act was repealed under the sponsorship of none other than former Sen. Phil Gramm (R-TX), millionaire and McCain’s “economic advisor” before he had to be thrown under the Straight Talk Express for among other things, calling the American People “whiners”.

Glass-Steagall was enacted after the Great Depression to prohibit banks from owning brokerage firms and vice versa, to prevent conflicts of interest between these two sectors of the financial system and it worked well for 60 years. But greed got the better of the banking industry and our representatives and upon repeal the big banks went on a feeding frenzy, buying up the brokerage firms. So when all these bad loans were made and sold as quickly as possible to the big banks to keep the fees but offload the risk, the big banks in turn used their brokerage arms to bundle these loans into securities to sell for investment. But whereas there was once an incentive for the brokerage to check the teeth of what they were buying from the banks for bundling and resale to their customers, now there is in fact a disincentive to question the value of your own assets. Bad for business don’t you know. So they passed along bad paper and Freddie and Fannie along with financial institutions and investors around the world bought it on good faith in the American financial system, faith that was unfortunately misplaced.

Of course Paul Ryan isn’t going to point out these facts. Instead he sees it as another opportunity to push the shock doctrine capitalism and privatization agenda of the far right who don’t believe that we should share in anything in this country, that nothing should be public. Paul makes the laughable argument that, if privatized, the citizenry would not be called upon to bail out these entities again in the future should the need arise. Apparently Ryan has never heard of Bear-Stearns & Co., a private “too big fail” firm bailed out by the Federal Reserve just last spring.

There is a constantly repeated theme of GOPish deregulation followed by financial meltdown and public bailout from the savings & loan crisis to WorldCom, to Enron (also the result of Sen. Gramm’s manipulations) to the current sub-prime mortgage mess. I know that it’s an article of faith in the GOP that all corporate regulation is bad, but it’s an article of blind faith that in revelation has been shown to be wrong over and over again. You’d think the American people would learn from this history. A certain amount of regulation actually makes sense for the public good and obviously in the end for the good of the overall business sector as well, except for the few greedy and corrupt individuals who manage to profit from debacles like these. Not that Mr. Ryan will ever come around to see that, but at least if you’re going propose cures you ought to treat the cause of the disease and not just address its symptoms, or we’ll be right back here again in a few years with another GOP inspired fiasco, throwing more good money after bad. That’s just plain old common sense.

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