Conservatives have a mantra- the market is king. They feel that any government regulation of business activity is too much, and further, that if a consumer is too “stupid” to understand all the fine print legalese then too bad, so sad. To make money is the ultimate goal, regardless of who you throw under the bus to do so.

After the Great Depression and the stock market collapse of 1929, government eventually (under a Democratic president) managed to rein in the worst abuses of the private sector, and particularly the financial sectors, through regulation. Regulation that worked to protect the little guy, Joe and Jane American, while ensuring that businesses could still operate and make a profit. And low and behold, those regulations created a nation that had the highest levels of education, the highest levels of prosperity among citizens and companies, and the highest levels of innovation in the history of the modern world. But for the money-hungry power brokers and executives, that wasn’t good enough; they wanted more money and fewer rules. And so they began to lobby our supposed public servants to change the rules.

Between the late 1930’s and the early 1970’s, government regulations afforded working class Americans a way to buy a home, have safe foods and medicines, and even to save for a rainy day. It was unlikely that a serious illness could drive you from your home due to bankruptcy. It was next to unheard of for a family to be foreclosed on due to shady mortgage finances. Regulations and government agencies designed to benefit the working poor saw to it that people could find a piece of the American dream without having to sacrifice their childrens future or become indentured to the banks and corporations.

After World War II, until the late 1970s, the system work. The savings-and-loan industry was highly regulated by the federal government, with a mission to take people’s deposits and then provide loans for the sole purpose of helping people buy homes to live in. Washington insured those loans through the FDIC, provided mortgage discounts through FHA and the Veterans Administration, created a secondary mortgage market to guarantee a steady flow of capital, and required S&Ls to make predictable 30-year fixed loans. The result was a steady increase in homeownership and few foreclosures. –The American Prospect

But then came the era of Civil Rights, and it was discovered that even these regulations weren’t offering the American Dream to all citizens. The FHA, along with private lenders, were found to be discriminating against people of color in their lending practices so Congress had to act. And they did so by outlawing discrimination in lending. More regulation, passed in the spirit of fairness for all, only pissed off the money brokers.

And so began the push from the financial industry, and then every other industry under the sun, to eliminate or reduce those very regulations that made the American economy the envy of the world and the American people among the most prosperous. 

The American government, both Democrats and Republicans, have helped usher in this era of messy economics hand in hand, but the greater damage has been done under Republican administrations beholden to corporate financial largess through campaign contributions and other assorted financial goodies. The S & L crisis of the 1980’s was a direct result of government abolishing interest rate caps, opening the door to sub-prime lending practices. (An interesting note about that particular messy political era- Both John McCain (the GOP presidential nominee) and Neil Bush (the current presidents brother) were up to their eyeballs in fudiciary fiascoes during the S & L bail-outs, but we have such a short memory in this country don’t we?) The result was an intensive run-up of paper wealth, which became actual wealth in the hands of a few top CEO’s and financiers. Oh, and politicians too.

The deregulation of banking led to merger mania, with banks and S&Ls gobbling each other up and making loans to finance shopping malls, golf courses, office buildings, and condo projects that had no financial logic other than a quick-buck profit. When the dust settled in the late 1980s, hundreds of S&Ls and banks had gone under, billions of dollars of commercial loans were useless, and the federal government was left to bail out the depositors whose money the speculators had put at risk. –The American Prospect

So much for a benevolent government looking out for the little guy. And it only got worse. With the evaporation of serious financial regulation, creative money managers invented all sorts of risky schemes and unleashed them on the less-than-saavy American public.

Under Ronald Reagan, the Patron Saint of Greedy Douchebags, government interest in regulating financial markets withered away to next to nothing. Government agencies like the FHA were all but discarded, leaving unscrupulous lenders to fill the gap. The first George Bush was not only complicit in letting this massive shift of governmental responsibility, he continued it while his sons profitted from one bad business deal after another.

The S & L bail-out cost American taxpayers billions of dollars while those at the top got little more than a slap on the wrist to think about while they counted their ill-got gains.

An eight year stint with a Democrat in the White House did little to change the tide. Although the Clinton era is widely viewed as one of economic boom, the reality is that the rise of bad lending practices really took root in the 1990’s under his watch, and continued gutting of many New Deal era regulations during the 1990’s set the stage for the unbridled greed and ultimate collapse we now live with.

The sub-prime mess, the huge risks taken by hedge funds, and the conflicts of interest that led to Enron and kindred scandals, are all the consequences of serial bouts of financial deregulation. Since the 1970s, in the name of free-market efficiency, Congress and presidents of both parties repealed key protections put in place by the New Deal. But the main effect has been to engineer windfall profits for financial insiders, replace real productive innovation with financial engineering, shift wealth from families to corporations, and put the entire American economy at ever greater risk. -The American Prospect

It would be nice to put most of the blame on the current Idiot in Charge, George W. Bush, but it just can’t be done. This era of compounding deregulation is as bi-partisan as it gets. But Georgie Boy managed to accelerate the concept to a new degree and under his watch, deregulation has enjoyed a Blitzkreig that would have made Goering proud. Where previous administrations and Congresses seemed content to limit the deregulation to the financial sector, Bush has presided over widespread deregulation of most government agencies, and especially those who’s task was to help the little guy get a leg up. The FDA, USDA, FEMA, FHA are just the tip of the iceburg. Compound this reality to the massive privatization of services once handled by government employees, services now handed out under no-bid contracts and hardly scrutinized by government accountability teams, and you can see that the conservative War on Good Government has achieved a remarkable success, at least in terms of shafting the citizens of this country and creating financial havoc the world over.

Yet it could be that the tide is finally turning…again. Enraged by the scandals of energy manipulation and loose accounting standards discovered when Enron blew apart (led by yet another Bush buddy), Americans began to pull the wool off their eyes a little at a time. Not nearly enough or fast enough to spot the shady dealings underwriting the entire mortgage industry, but enough to get politicians to start rethinking regulation policy. And that is a good thing.

And so is this. As federal prosecutors begin to haul those who practised the worst kinds of predatory financing and deceptive investment schemes, it is time for lawmakers to rekindle the idea that consumers need protection from the worst excesses of capitalism-the very kinds of excesses that too often find life wihtout a watchdog agency at their backs.

Alan Greenspan, the former Fed Chief who presided over what may well become the most serious financial crisis in modern times, once noted that it was a “collectivist” myth the idea that businessmen, left to their own devices, “would attempt to sell unsafe food and drugs, fraudulent securities and shoddy buildings.”On the contrary, he declared, “it is in the self-interest of every businessman to have a reputation for honest dealings and a quality product.” –

Right Alan. Unless of course there are no consequences to their actions and no government willing to end them. Especially when the government aids and abets their shady, unscrupulous, and definitely immoral ways.

This crisis isn’t over, in fact, it’s only really beginning. And it’s worldwide again, just like in the 1930’s. Only this time, in addition to a financial quagmire, we have an urgent energy crisis that is spiking costs of everything under the sun, a formidable environmental challenge that is creating food shortages and natural disasters of ever increasing destructive power, and several unending wars of ideology that do little more than make things worse for average people all over the world.

But the politicians and CEO’s are still raking in the dough, so I guess everything is fine after all. I mean, who really gives a shit about the rest of us? We’re just supposed to shut up and take it, right?

(Articles used for background include: Deregulation fueled mortgage fiasco, The Conservative Origins of the Sub-Prime Mortgage Crisis, The Bubble Economy, The Dangers of Deregulation, and Hundreds Indicted In Mortgage Fraud Probe. )


(Cross posted at Bring It On!