Editor's Note: Starting today, TAP co-founder and co-editor Robert Kuttner will be providing daily short takes on what's happening with the market meltdown.
Remember Regulation? Uh, Nope. Today's Times had an all-too-characteristic piece leading its business section. Jeff Bailey's end-of-summer wrap-up on air-passenger frustrations was headed, "Most Flights Are Late and the Situation May Only Get Worse." Bailey ticked off the familiar roster of woes -- late arrivals, canceled flights, overcrowding, and so on. Like most pieces this summer on the airline mess, this one discussed business strategies by airlines, and defensive tactics by passengers, and addressed every dimension of the problem but the failure of airline deregulation. It seems to be ground into the media psyche that the failure of the alleged gains of deregulation is simply a subject that cannot be revisited.
Well, Maybe. Meanwhile, on another front of the endless effort of industry to gouge consumers, here's one where the public is actually winning a round. David Cay Johnston, perhaps the sole reporter on a major daily skeptical of deregulation, reports in today's Times ("A New Push to Regulate Power Costs") that state after state is rolling back the deregulation of electric power that has cost consumers an extra $48 billion in the last fiscal year alone according to Energy Department statistics cited by reporter Johnston. Deregulation was going to increase competition and lower prices. Mainly, it was an invitation for industry consolidation and market power. What will it take before some real leaders step forward and challenge the entire ideology?
Perhaps a Credit Catastrophe? Countrywide Financial, the nation's biggest mortgage lender, and one of the craftiest in devising bait-and-switch mortgage products that are now blowing up, is facing huge losses and a plummeting stock price. Countrywide, among its other holdings, owns a federally insured savings bank. For a time, anxiety about the unregulated mortgage company was causing an old-fashioned run on the bank -- anxious depositors withdrawing savings.
Ironically, Countrywide reassured those depositors with full page ads trumpeting the fact that their savings were federally insured -- thanks to the kind of government supervision that Countrywide and its predatory brethren mightily resist when it comes to the mortgage business. If Countrywide's savings bank survives, it will be thanks to Uncle Sam. Lately, you may have also noticed that Countrywide is now advertising for deposits, offering a hefty 5.65 percent on one year certificates of deposit. That's at least half a point above the going rate. Having paid more for its money, Countrywide will then have to find higher-risk, higher-yield uses for its investments -- you guessed it, sub-prime mortgages.
Those with long memories will recall that this syndrome is exactly how the savings and loan meltdown of the 1980s began -- newly deregulated little banks wanting to grow into bigger banks paying above-market rates for deposits, and then investing in risky junk to earn extra-normal yields.
Fed Up? (Or Down?) Today's Financial Times has a perfectly emblematic editorial -- I have read dozens of these in every major paper in the past month -- warning that the Federal Reserve should not be too quick to cut rates.
To cut, or not to cut, that is the question. Except it is the wrong question. If government (including the Fed) and not been so quick to undo four decades of financial regulation, the Fed would not be stuck in a Hobson's choice of either cutting rates and bailing out scoundrels (and inviting more risky behavior with borrowed money) -- or hanging tough on rates and risking a deeper economic calamity. Where are the editorials calling for tougher regulation of banks, investment banks, mortgage lending? Few and far between, just like political leadership on the issue. Nearly everyone drinks the same Kool-Aid, and we may need the purgative of even deeper economic stress before contrarian opinion gains traction.
Watch This Space for ongoing comment on the financial meltdown and its connection to the broader ideological failure of rightwing economics (which is uncomfortably close to centrist economics).
