A Two Step Program for Reforming Wall Street’s Gambling Addicts

by Elizabeth Palmberg 01-29-2010

Notwithstanding President Obama’s denunciation Wednesday night of the empty “prosperity” that was “built on a housing bubble and financial speculation,” the Wall Street bubble profiteers are shocked — shocked! — to discover that there was gambling going on in their establishments. In particular, in all those commodity-future-based index funds, mortgage-backed securities, and, well, nothing-backed securities — you know, the ones that the financial world made a mint selling until they ran the global economy off of a cliff.

More precisely, Wall Street heads have professed themselves shocked to realize that the prices of said “investments” had little to do with the supply and demand for houses, or for commodities, or for, well, credit defaults. (The problem isn’t that most people didn’t understand that term — the problem is that, apparently, nobody understood it). Instead, those prices were a big old bubble reflecting the supply of bubble-riding global investment cash — and, as we have seen, when those bubbles pop, they take the rest of us down with them.

“The next 2-3 weeks are crucial for getting any significant financial reform as the Senate works on finalizing Senator Dodd’s bill,” says says Dave Kane, one of the activists behind www.stopgamblingonhunger.org. “We have an incredibly broad alliance of over 450 business, labor, consumer, farmer, religious and international development organizations working together for common-sense reform, but we see that Wall Street, incredibly, still has a lot of power in Congress. Wall Street spent over $300 million just in the last part of 2009 to weaken any financial reform efforts, and it has paid off. It’s important that Congress hears from more than just Wall Street. Senators need to hear from voters that they want strong financial reforms.”

This is a clarifying moment for me, because it looks like, in its starkest form, a battle between the real economy of actual goods and services on one side, and the “financial” economy on the other. (Don’t get me wrong — I like having a checking account; it’s just the crashing-the-world-economy part, and helping-cause-the-2008-food-crisis part that I am opposed to.)

So, what are advocates like Kane demanding? For the financial-reform bill currently being crafted in the Senate, primarily two things:

1) Make all “over-the-counter” derivatives trade or clear through an exchange clearinghouse. Although the name sounds innocuous, as if Goldman Sachs was out there selling financial ibuprofen, what “OTC” means on Wall Street is that it’s a deal which isn’t listed out in the open on a stock exchange. The people who sell them insist that this is because each one has to be hand-crafted to be too extra-special to be listed on an exchange. It is nothing more than coincidence — honest! — that “over the counter” sales also happen to be a way to avoid putting down any actual collateral for your purchases, as exchanges require, or letting buyers better gauge what the going price should be (so that Wall Street can’t take advantage of their clients), or letting markets and regulators know who owns what so that they can see systemic risks and avoid panics.

2) For energy (and carbon) futures, real limits on how much any one Wall Street bank or trading house can buy up at one time, to prevent bubbles that hurt farmers, eaters, etc. (Actual commodity producers or consumers looking to hedge their financial risks would be exempt.)

The message of advocates like Dave is clear: No back-room gambling on hunger. No Wall Street loopholes. No excuses.

Elizabeth Palmberg is an assistant editor at Sojourners magazine.

Categories: Economics

dlondonx

Wait a bit here. I see you pay tribute to alot of 'economics', but 99% of economists would disagree that the use of paper currency was bad. (Read marginalrevolution.com for a couple of libertarians views that disagree with you). Also, was it not theft when the countries with the more powerful armies stole the gold (or oil) from those with the least powerful armies, and then claimed it as their 'property'? In fact, your beloved banks thrived on the use of currency, since they no longer had to worry about the high transaction costs of transporting large boxes of gold between buildings, cities, or even countries. By reclaiming the money lost to this inefficiency, everyone's lives have been made better.

Besides, its not as if we dont have some commodities that form the basis of our 'paper'. You could value a dollar bill based on the aggregate ability of our economy to turn oil, coal, and natural gas into stuff and services. This aggregate ability is influenced by both private actions (entrepeneurs and corporations) and government actions (roads, rails, police protection, civil liberties to produce a stable, safe political environment, monopoly protection, subsidies, grants, tarrifs, taxes, etc.). Without either of these two systems, everyones lives would be much worse.

BlueDeacon

If you believe in the total depravity of man as I as a Calvinist do, you would
realize that sin is far greater than "economic cycles" and cannot be reduced
to such. Your question is thus irrelevant theologically.

letjusticerolldown

You still have not come up with one financial regulation you like. You hint that you might like monetary exchange in the form of gold. Would you back a standard as to the purity of the gold used in minting the coins? Or maybe it would be most pure if we simply went back to a barter system. Better yet--how about if we simply don't engage in commerce?

fundamentalist

"This leaves no room for gifts."

That's nonsense. Gifts aren't part of the market, but the market is not all of life. Religion, family, etc are not part of the market.

"Plenty of theologians can be found to argue that, indeed, institutions and nations are precisely what Paul was talking about when he said that we wrestle with the powers and principalities of this world."

You can find plenty of theologians that teach nonsense. The question is "does the interpretation agree with sound principles of hermeneutics?" Yours does not.

Those theologians who believe that Paul referred to institutions and nations probably don't believe that angels and demons exist, which is the main reason that had to invent that interpretation of the passage.

fundamentalist

No to most of the above. Money started out as a commodity, gold and silver, and private property, and that's how it should be. Early in the history of money rulers figured out how to cheat people out of their property by giving themselves a monopoly on makind coins out of gold and silver.

Because commodity money still left too much power in the hands of the people, rulers decided to force people to use paper money. In the US this happened when FDR outlawed private ownership of gold. With that, the state could print as much paper as it wanted and pay its bills to people with increasingly worthless paper. It's a form of theft. We dignify that theft by calling it inflation.

"Do you agree with controls on how much currency is printed?"

That would be nice, but we have had no controls on how much the Fed prints for about 80 years.

letjusticerolldown

So you can't think of one economic regulation you agree with? Do you agree with having a financial system? Do you agree with having a currency? Do you agree with controls on how much currency is printed?

Stein

You defend that the market is fundamental by asserting that you have to
exchange things of value, i.e. that exchange is fundamental.

This leaves no room for gifts. If the ONLY way to get what you need is
to exchange value, then there is no room for grace. If it is not the
ONLY way to get what you need, then it is not fundamental.

Succinctly, I assert that defending the market as fundamental is
idolatry.

Regarding your belief that principalities must be angels and cannot be
institutions, we differ. Plenty of theologians can be found to argue
that, indeed, institutions and nations are precisely what Paul was
talking about when he said that we wrestle with the powers and
principalities of this world.

Charles Kiker

I don't know your motives. I only know what you write. Good bye and God bless.

fundamentalist

"The market is NOT fundamental to human interactions."

It certainly is. How do you purchase something from someone else without violence? You offer something you have in exchange for something the other person has that you value more than what you have. That is the market. Nothing more. If sin enters the market, it's because humans are sinful, not the market.

Things cannot be evil, else they would have the possibility of being redeemed through faith. Things are tools. The market is a tool for mankind to use to improve his life.

"It is a principality of this world -- one of those that is fallen and currently in rebellion to God;"

I the the "principalities" of this world are the fallen angels that follow satan. The market never fell because it never had a mind or a will with which to rebel. Only humans can sin and be redeemed.

"which is exactly why we need some forms of regulation; to prevent humans from grossly violating each other."

We need laws punishing fraud and theft. Free marketeers have always insisted on those. But beyond those, regulation does not prevent greed and abuse; it encourages it. Google for "regulatory capture" and see what I mean. Adam Smith understood that the more power you give politicians, the more they have to sell to the highest bidder.

What was Jesus' message about transforming the world? Did he come to give us the correct regulations for banks and corporations? Or did he say that you must be born again?

fundamentalist

Maybe I did and you're guilty of judging my motives unfairly.

Stein

Your assertion was that "The market is nothing more than..., nothing
more."

Now you say: "As for greed and licentiousness, that's a part of every
aspect of society, even church."

So we are agreed that there is something more. The "market" is a human
interaction; it is complex. To try to make it simple and claim that it
is "nothing more" than some simple concept is misleading.

You somehow want to ground the market as fundamental (hence the attempt
to reduce it to such pure simplicity) but that is the place for God
alone.

The market is NOT fundamental to human interactions. It is a
principality of this world -- one of those that is fallen and currently
in rebellion to God; one of those that will eventually be redeemed and
brought under God's feet. In the meantime, it is an institution of
which we are warned to not be squeezed into its mold.

"As for greed and licentiousness, that's a part of every aspect of
society" -- which is exactly why we need some forms of regulation; to
prevent humans from grossly violating each other.

Charles Kiker

I think a little humility is a virtue. You can be confident of your position
w/o stating it in such a way as to suggest that those who disagree are
ignorant or stupid. I do not value ignorance. If I did I would not have
spent 10 years (post high school) earning a Ph.D. And I do think the
counterpart of humility is arrogance. And I think it behooves all of us who
are confident of our positions to seek to state them with humility.

Peace to you and to all who read this comment.

Rev. Dr. Charles Kiker (retired)

fundamentalist

The people who are taking million dollar bonuses have no power. Their employers freely gave that money to them in exchange for their services. No one coerced the employers to give them those bonuses. There is no oppression in a free market. That's why it's called free. As for greed and licensiousness, that's a part of every aspect of society, even church.

fundamentalist

But you think knowing something and being confident that you know it is arrogant. The flip side of that attitude is that ignorance is a virtue.

fundamentalist

I was referring to economic regulation, not environmental regulation. They follow different principles.

fundamentalist

What in scripture describes sin as the cause of financial cycles?

Stein

Nothing more?

Of course it is something more. It is a place where a few people wield the power to draw bazillion dollar bonuses for themselves (which takes from everyone else) and craft golden parachutes in case anyone gets wise. It is a place where people lie and defraud small investors that don't have the buying power to defend themselves. It is a place of oppression, greed, and licensiousness.

letjusticerolldown

Environmental degradation has been a regular feature of the industrialized world for the past 300 years. Just because there has been environmental regulation and environmental degradation does not mean the regulation is either the cause or contributor to crises. Of course it can be wrong-headed. That is not an excuse to abandon regulation. The fundamental purpose of regulation is not to restrain crises but to provide a framework within which certain activities can flouish within the bounds of rules.

BlueDeacon

Not if you read the Scripture, it isn't. The only difference is that some
things are more emphasized than others at different times -- greed at some
times, sexual immorality at others, political intrigue ... you get the picture
(I hope).

Charles Kiker

No, and nothing in my statement indicates that I think ignorance is a virtue. Neither is arrogance.