Watching the congressional hearings on the financial reform legislation has started to give me a headache. The major problem is the language that is used to describe what went wrong when this country and its citizen investors almost veered into a depression. There are derivatives, credit-default swaps, hedge funds, sub-prime mortgages, sovereign bonds and shadow banks – its enough to make you long for the days of the local bank down the street where you put your money in a passbook account and walked away feeling secure.
How did making money become so complicated? There of course is no simple answer, but if there is a culprit in this whole meltdown mess and the political fallout it is speculating on debt. We now live in a world where making money by not having money is accepted as common practice. Government runs on debt, speculators bet on debt, banks create ways to profit from debt, and countries hold other countries debt. The words surplus and cash on hand are almost absent from our financial lexicon.
So naturally when government, in this case the Obama administration and Democrats in Congress, want to protect the average investor who knows nothing about all these fancy debt-generated pathways to the big payday, the financial elites on Wall Street and the investment houses complain to high heaven that they are being denied an opportunity to make money as they did during the gold rush days of the Bush years. To them a 401K is chump change compared to the real money out there that is unregulated and unknown except to a fortunate few.
We are now in the midst of a new gigantic political battle, only this time it is not with the health insurance industry and the big hospital conglomerates. This time the Obama administration is taking on the financial interests who have no shame, no scruples, no soul and I think it is fair to say no spirit of patriotism. These speculators act as if the meltdown didn’t occur and that they had nothing to do with destroying the dreams of average Americans.
As is the case with all controversial matters that enter the political process in this country, there will be financial reform legislation, but it will do little to deal with the root cause of the financial crisis this country has faced the last two years – speculation on debt. The law will create some sort of consumer protection agency, there will be some loose regulation of hedge funds, and greater monitoring of all these arcane ways to make big bucks. But in the end most real people will just have to trust that somebody out there is watching their money and protecting them from another meltdown. I sure wish the days of the bank down the street with the passbook account would return.