More summer heat: The debate over financial system reform

The heat of summer just went up by an order of magnitude with President Obama’s unveiling to Congress and the American people of a wide-ranging plan to overhaul the U.S. financial regulatory system. This is a reform arguably on a scale greater than any since FDR’s famous (or infamous) New Deal to extricate America from the throes of the Great Depression.

 Obama’s regulatory tiger sharpens the teeth of existing regulatory agencies, that is, the U.S. Treasury, Federal Reserve, FDC and SEC, to oversee financial institutions and practices. But it also provides the tiger with several new teeth, including a Financial Services Oversight Council, a National Bank Supervisor, and a Consumer Protection Agency (with authority over mortgages and credit card practices).

The Fed is to receive reports from all U.S. financial firms deemed of a certain minimum size to represent “systemic riskâ€� (some would say “too big to fail,â€� but that misses the point).  These include so-called “hedge fundsâ€� (which rarely hedge) that must henceforth file with the SEC.  The most fundamental and obvious rules of transparency, accountability and credit worthiness apply. Executive remuneration is not capped, but may be subject to future guidelines.  

Equally important, Harvard’s Elizabeth Warren, Chair of the Congressional Oversight Panel monitoring the government’s bank bailout program,  has largely won her fight to regulate not only particular institutions but also their financial products.  This is important when you stop to realize that most “mortgage-backed securities,â€� for example, are not in fact backed by, or traceable to, any mortgage whatsoever.

Credit default swaps do hardly better;  they were developed to evade insurance regulation. The question is not whether derivatives have a vanilla or raspberry flavor;  it’s whether there’s any vanilla or raspberries in the product.  In the pharmaceutical world, the World Health Organization calls this truth in labeling.

 The devil, of course, is in the details, but details aside, the Obama financial reform plan brings a massive ideological conflict to a heated head this summer.  It’s a collision of two diametrically opposed modes of thought.  Despite what detractors say, the Obama plan is not “socialismâ€� in that it does not intend to place the means of production and wealth in the hands of government.  Arguably, elements of the plan are “socialistâ€� in the sense that they regulate self-interest for the greater public good.  The Obama plan puts Americans and America first - before the personal self-interest of the few.

    u    u    u

The Obama plan stands in sharp contrast to the recently-prevailing neo-con ideology that self-interest and deregulated “freeâ€� markets are all that are needed to promote economic and social progress.  

This ideology is what Fareed Zakaria has succinctly labeled “The Capitalist Manifesto:  Greed is Good.â€� (See Newsweek magazine, June 22.)  A few years back, in better times, Newt Gingrich produced an audio tape recording instructing his followers that greed, like thirst for freedom, is “naturalâ€� and “good.â€� The flip side, in his view,  is that government, the cooperation among democratic peoples and equitable concern for others, is unnatural and bad.

  It is curious that the neo-conservative (and sometimes libertarian) mantra on this is that the private, for-profit and unregulated “freeâ€� market model is the “natural,â€� most successful model, the only one worth talking about.  Neo-cons even appeal to the authority of Charles Darwin for the proposition that in the competition of the marketplace the weak should fail and the strong prevail.  

It’s the “survival of the fittest,â€� and that’s progress. Social Darwinism, however, is something of a misnomer since it was Herbert Spencer rather than Darwin who first applied evolution and natural selection to human society.  (Neo-cons do not actually read Darwin.)

   The “Origin of the Speciesâ€� (1859) did not touch on human society, but when Charles Darwin finally did address the subject in “Descent of Manâ€� (1871) he said something altogether different:  Sympathy for others — necessary within savage tribes for defensive purposes — was magnified in civilized societies.  Tribes or nations able to translate this sympathy into patriotism and sacrifice (altruism) for the common good, Darwin said, “would be victorious over most other tribes and this would be natural selection.â€�  In short, in civilized societies altruism ultimately defeats selfishness.

 This is what the Obama financial system reform plan is ultimately all about.  We can argue about and amend the details, but the main implications should be clear.  For the last quarter century, we gave the neo-cons free range to exploit their ideology.  

They ruined the U.S. economy and set back social progress for decades.  Now it’s our turn, as patriotic Americans, to retake and rebuild our economy and our nation on its original democratic foundations. As the Millbrook (N.Y.) School   motto holds: “Non sibi, sed cunctis.â€� (Not just for oneself, but for others.) The Obama plan serves all Americans.

Sharon resident Anthony Piel is a former director and legal counsel of the World Health Organization.