Will this speech lose any of its red-of-tooth-and-claw glory this trading season? I doubt it, notwithstanding the fact that an insane focus on three-year profit cycles and a lack of transparency and oversight was behind every major financial crisis in this country’s history—from the Great Depression, to the stock market crash of 1987 to the savings and loan crisis. Now that the government has stepped in, one has to wonder whether the massive bailout plan will only incentivize the same shortsighted “greed is good” mentality that caused this whole mess to begin with. How could anyone on Wall Street regard the bailout package as anything other than a green light to continue with more of the same? Now, more than ever, the self-proclaimed captains of the Universe can be rest assured that, in the short term, they’ll line their coffers, and in the long term, the government will clean up the mess.
Missed in the headlong rush to pass the bailout package was a unique opportunity to change the culture of Wall Street by using the bill as leverage to negotiate greater transparency and oversight. Indeed, what the bailout bill needed most—a heavy dose of government oversight—is precisely what is most lacking. To recap: the bailout is supposed to clear $700 billion worth of toxic mortgage back securities from the rolls of our financial institutions. But who is going to decide how the government prices these assets? No one really knows the answer to that question. But I can assure you that bank lobbyists will play a wildly inappropriate role in the process. What’s desperately needed is an independent government agency to price the assets. Absent this, the bailout package may add some kick to the economy by injecting a dose of consumer confidence. But ultimately the solution will become a perverse mirror of the same short sighted thinking that birthed the crisis. Translation: the economy may unfreeze for a year or two, but its bloated heart remains in need of a surgeon’s scalpel.
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