Memo to Financial Investigators: Dig Deep!--William Greider (The Nation

Memo to Investigators: Dig Deep
By William Greider

This article appeared in the October 26, 2009 edition of The Nation.
October 8, 2009


Dysfunctional Democracy. Surely the political system itself is a root cause of the financial crisis. The swollen influence of financial interests pushed Congress and presidents to repeal regulation and look the other way as reckless excesses developed. Efforts to restore a more reliable representative democracy can start with Congress. The power of money could be curbed by new rules prohibiting members of key committees from accepting contributions from the sectors they oversee. Regulatory agencies, likewise, need internal designs to protect them from capture by the industries they regulate.

The Federal Reserve, having failed in its obligations so profoundly, should be reconstituted as an accountable federal agency, shorn of the excessive secrecy and insider privileges accorded to bankers. The Constitution gives Congress, not the executive branch, the responsibility for managing money and credit. Congress must reassert this responsibility and learn how to provide adequate oversight and policy critique.

Reforming the financial system, in other words, can be the prelude to reviving representative democracy.

Origins of the Debtor Nation.
Congress instructed the Angelides commission to examine lopsided financial flows in the global economy and the global imbalance of savings. How did China wind up with a mountain of surplus capital while the US economy has had to borrow more heavily from abroad each year just to stay afloat? One obvious explanation is the unbalanced trading system in which the United States has been steadily weakened by serving as "buyer of last resort" for other nations' exports. During the past two decades, the United States piled up something like $15 trillion in debt from trade deficits, as value-added production and jobs were relocated overseas. Simply put, we import a lot more than we export, goods we buy from abroad that used to be manufactured in the United States.

Political debate usually avoids the links between negative US trade and our weakened condition as a debtor nation, but the consequences are visible through several channels. The out-migration of production and jobs drives the long-running stagnation of industrial wages, roughly stuck at the same level as in 1973. The annual trade deficits, recently as high as 6 percent of GDP, subtract directly from domestic economic growth. These ill effects and others have created a permanent shortfall in aggregate demand--not enough consumers with the money to buy the stuff they need or want. So households rely on borrowing to pay the bills and hang on to their faltering living standards.

The financial crisis crisply marks an end to that era of false prosperity. The illusion of living well on borrowed money cannot be revived by repairing the banking system. The restoration of prosperity will require wrenching economic changes, including a very different US approach to the global trading system. No one expects the commission to solve the trade problem, of course. But the investigation can restart the debate on more honest terms. Asking deeper questions about the true sources of the calamity is a first step toward developing authentic answers to the nation's predicament.

More about the two ongoing investigations at........

http://www.thenation.com/doc/20091026/greider

impending meltdown and especially the ill-effects of Trade Policy.