Insanity: After the Big Crash, The GOP Wants to Deregulate ... Again

Millions of Americans are struggling to survive in the ruins of a once-healthy economy. A bipartisan frenzy of bank deregulation led to this catastrophe, and the financial reform bill passed this year is only a first step toward repairing the damage. We should be talking about the additional actions needed to prevent future disasters. But the "solution" being proposed by the Republican Party isn't just incomplete, or inadequate, or even incorrect.

It's insane.

The campaign cornerstone of Republican financial policy isn't really a policy at all. It consists of one word: "Repeal." That's right: Banker greed has driven the economy into the ground, and the Republicans' only concrete solution is to undo the only actions that have been taken to restrain that greed in the future.

The call for repeal has been voiced early and often, most prominently by the perpetually tanned John Boehner [1]. It was Boehner, you may recall, who likened the financial bill to "killing an ant with a nuclear weapon [1]." Stop for a second and consider: 15.9 million Americans are unemployed. Millions more are teetering on the edge of financial disaster. More than 1.1 million homes have already been foreclosed, and more than 1.65 million received foreclosure filings in the first half of 2010. 1 out of every 7 mortgages are delinquent or are in foreclosure.

An "ant."

Boehner is slated to become Speaker of the House if the Republicans win Congress (the first time in history that position would be held by an Orange American). That means his words must be given great weight. And his call for repeal has been repeated by Mike Pence [2], Chairman of the House Republican Conference, and by a whole lot of other GOP politicians, too. It's become a bedrock party principle.

There is no credible argument for that position. None. No credible ideology against deregulation is so inflexible that it would lead rational people to endorse repealing moderate banking controls - not after the crises we've seen. Their position is so illogical, in fact, that it's tempting to believe that the Republican Party has been hijacked by nihilists bent on destruction for its own sake. ("We are nihilists, Lebowski! We believe in nothing!")

It's not nihilism, of course: It's cynicism. There's no other rational explanation. The GOP's been trolling hard for Wall Street cash - and shamelessly so, as could be seen when leading GOP Senators met with bank executives right before the financial reform vote [3]. And that "hey, sailor!" attitude is paying off. A recent study by the Center for Responsive Politics shows a dramatic shift in Wall Street money [4]away from Democrats, with Republicans now receiving 70 percent of money from people and PACs associated with the securities and investment industry.

To be fair, today's economic crisis isn't solely a Republican creation. It's the product of Republican and Democratic actions that go back thirty years. Deregulation of savings and loan associations under Reagan led to the S&L crisis, creating a massive wave of institutional failures that cost taxpayers more than $120 billion. Then a bipartisan push for deregulation during the Clinton era led to our current crisis, which was far more costly but which resembled the S&L crisis in many ways. Once again bankers were free to gamble recklessly, in a real estate market that provided incentives for issuing bad loans, knowing that the government would be forced to bail them out if things went wrong.

Fool me once, shame on you. Fool me twice, shame on me. Fool me three times, as the Republicans propose, and ... well, what is there to say? It would be insane.

The GOP's defenders may say that it's unfair to accuse these politicians of cynicism. They'll argue that they really do believe that regulation is so evil that even a cycle of endlessly repeated financial crises - brought on each time by greed and fraud - would be better than allowing the evil tentacles of government to expand their grip. Yet these politicians don't object to laws that allow the government to stop other forms of crime, or to prevent terrorism. So this line of defense boils down to: They're not cynical. They're incoherent - in a way that fortuitously encourages a shower of cash from Wall Street.

Whatever their motivations, here's what we would happen under the GOP's "repeal" plan: The Federal Reserve audit would never be released, so we'd never know who received emergency aid (Goldman Sachs, we presume?) or how much they got. The Consumer Financial Protection Bureau would be dismantled, perhaps even before it got started, leaving banks and credit card companies free to invent new ways of ripping off their customers. New rules would be eliminated that prevent speculators from playing greedy games with necessities of life like food and fuel, leaving us vulnerable to the spikes in food prices that harmed consumers in 2008 -- or to another round of $4.00 per gallon gas prices.

The bill's steps toward transparency in derivatives trading would also be eliminated under the GOP "nihilist economics" plan ("nihilinomics"?) So would the requirement that regulators find ways to reform the credit ratings agencies -- private companies that were so compromised by conflict of interest that they failed to perform as they should. [5]

There was another small victory for the bill this week: The Securities and Exchange Commission voted to give shareholders more control over a company's Board of Directors, as permitted by the new law. While this first step is insufficient, putting too many constraints on the process, at least it's a start. And it highlights an important issue: Senior executives typically nominate Board members who'll give in to their demands - which usually include outrageous pay packages that reward them whether they do a good job or not. This cozy "one hand washes the other" relationship leaves shareholders doling out huge sums for even the most miserably underperforming executives. The Republican solution to this problem? "Repeal."

But then, Republicans have been echoing the rhetoric of big corporate CEOs all along. Republicans claim to represent "business" - a category that includes the small and medium employers who drive job growth. But today's GOP leaders are merely echoing the spin of corporate executives at the very largest corporations. Predictably, these executives are trying to maximize profits by opposing reasonable regulations that protect the public. We're seeing the results of that anti-regulation approach today in the Gulf. Nevertheless, the big-CEO spin was dutifully repeated by Fareed Zakaria [6], and was echoed by Boehner in his recent economic speech. The problem is "government run amok," Boehner said, adding: "The prospect of higher taxes, stricter rules, and more regulations has employers sitting on their hands."

The facts say otherwise. One of the biggest reasons corporations aren't spending the cash they have on hand is that, as the Wall Street Journal [7] reported, they were unable to get the short-term loans they need for routine operations during the 2008 crisis. In other words, they can't trust their banks to be reliable business partners, because bank executives are free to behave irresponsibly (and reward themselves for it.) The GOP "solution" would make that problem even worse, leaving America's employers with less access to the loans they need to stay in business. The result? Less profit. Fewer jobs. An unsafe nation.

There's no question that much more needs to be done. We haven't fixed the "too big to fail" problem. Banks will probably find ways around the bill's restrictions on gambling with publicly guaranteed money. Underwater homeowners are being left to drown, holding the note for the banks' bad investment and loan practices. Financial institutions can still gamble in many cases, without being taxed to discourage recklessness or help fix the damage they caused.

But the Republican alternative is no alternative at all. It's not even just "a return to the failed policies of the past," to use the Democratic catchphrase - although it's certainly that too.

It's insane.