On February 13, Gretchen Morgenson wrote an important article in the New York Times describing post-bailout America. Within, she describes how major financial institutions have become “too politically powerful to fail,” and a Congress that is too weak knee-ed to appropriately tackle the problem of Too Big to Fail.
The article makes two important points: First, that post-bailout the government has now given an implicit guarantee to large financial institutions that is currently unquantifiable and that this implicit guarantee is likely to be dismissed by politicians. The article cites Edward J. Kane, professor of finance at Boston College, who argues that “People talk about systemic risk, but they have no metric of measuring it. If we recognize that obligations are being put on the taxpayer down the line, then they can be controlled and managed.” Second, Morgenson then notes that “Lawmakers interested in re-election have little incentive to be truthful about what implied guarantees of powerful companies will cost the taxpayer. Better to brush it under the rug or pretend the costs don’t exist. Then, when they must be paid, policy makers can argue that it’s an unforeseen emergency and an odious necessity.”
Will we have the political will to come to terms with the realities of post-bailout America?
See: Future Bailouts of America
No. In order to address and fix the current economic problems in our "post-bailout America," lawmakers must first acknowledge and address the unpopular details of any plan, inlcuding the actual, foreseen costs to taxpayers. As Morgenson stated, politicians interested in re-election have no incentive to take such actions. There is no incentive because lawmakers believe that addressing unpopular issues head-on will lower their popularity with constituents, and will likely result in their political ouster. However, until legislators (as a majority) are willing to admit and discuss the true costs of their "bailout plans," the problems of the American economy will continue to grow, and the American taxpayers will continue to pay for legislative mistakes and a lack of moral fortitude in Congress.
ReplyDeleteI think Citizens United v. Federal Election Commission from the October 2009 term basically guarantees the realities of post-bailout America are not really for us to decide. Federal campaigns are generally too expensive to meaningfully participate unless the first six zeros on the income statement of the individual or organization are irrelevant. In other words, if you have to ask how much political capital costs, you can't afford it. Its just not realistic to think otherwise. This seems true yet the Anthony Kennedy assures us that speakers may have influence over or access to elected officials does not mean that those officials are corrupt. (As a footnote here, apparently, Citizens United never raised the issue and the Roberts Court, not only Justice Kennedy, requested argument). Justice Kennedy makes a valid point but his assurance is really only that, a valid point. In my judgment, Justice Kennedy's point, while valid, will aggravate a purpose which already seems arguably frustrated. In reality, access to representatives on a federal level is reserved. File your tax return and notice the box you can check to contribute a measly $3 to the Presidential Election fund, or $15 in 5 years. Then meet Bob Perry here: [http://en.wikipedia.org/wiki/Bob_J._Perry]; and again, here: [http://www.campaignmoney.com/contributors.asp?pg=1]. Although in 2003 Bob Perry's privately held construction company ranked as the nation's 42nd largest home builder with $420 million in revenue, Bob Perry is probably not "systemically important."
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