ONE YEAR AGO, WALL STREET FAILED. CAN IT HAPPEN AGAIN?

Did the Wall Street, "too-big-to-fail" companies become, "to-big-to-regulate" organizations?

...Wall Street today

OK, it´s now been a year since Senator John McCain stated that "the fundamentals of our economy are strong" and then he abruptly shifted by saying the fundamentals are "at great risk"……? Yep, this is the same man that said that his "strong suit was not economics", and that was obviously a correct statement. Thank goodness, he lost the election last November.

I am a big believer that with all the blather that is being spewed by those that are criticizing the spending spree that initially started with the Bush administration, I agree with the Pulitzer Prize winning writer, Eugene Robinson when he wrote;

"The Obama administration and the Federal Reserve get too little credit for skillfully managing this terrible recession in a way that has kept it from turning into an all-out catastrophe. Too-big-to-fail financial institutions were put on life support or eased into oblivion in creative ways that involved massive injections of taxpayer funds -- but prevented [even worse] massive defaults. The auto industry, a victim of collateral damage, was expensively defibrillated and once again has a pulse. Nearly 100 banks have failed so far this year -- compared with 25 in 2008 and just three in 2007 -- but the depositors' money was saved."

What is becoming very disturbing is that the stock market is coming back while Wall Street and the banks are going back to doing what they did that got us into all this trouble in the first place.

As Mr. Robinson also wrote; "The wizards of Wall Street are raring to get back to business as usual -- and if we let them, we'll have only ourselves to blame when the next meltdown comes."

The "Wizards" and the banks as Robinson called them are back to growing bigger and giving giant bonuses while 200,000 Americans continue to lose their jobs every month. Yes, that number has slowed from 700,000 jobs losses per month, but we are now at 9.7% of US unemployment which is expected to hit over 10% next month or in November.

Many economists think we are still in for another negative blow, but the hope today is that the managers at the US Treasury and the Federal Reserve will minimize whatever problems we still must suffer through.

The bigger issue is whether the President and his team has what it will take to make the necessary changes in how Wall Street works for preventing another bout of what they have put us through over the past 10-20 years.

As Mr. Robinson stated; "Even with the reforms the president is proposing, we will still have a situation in which the tail wags the dog -- the tail being the financial system and the dog being the economy. Wall Street's theoretical role is to allocate capital most efficiently to the companies that can make the best use of it. Wall Street's and the banks actual roles are more like that of giant casinos where the gamblers are rewarded for taking outrageous, unconscionable risks with other people's money. If the bets pay off, the gamblers win. If the long-shot bets turn out to have been foolish, we're [the US taxpayer] the ones who lose. "We will not go back to the days of reckless behavior and unchecked excess," Obama said in his speech on Wall Street. "The old ways that led to this crisis cannot stand."

This all sounds fine and good, but how does the government deal with the massive "too big to fail" organizations that created those financial instruments such as "derivatives" and "credit default swaps" and that now have the latest software that can buy and sell stocks faster than it is for tracking and analyzing the exchange.

The prior Republican Congress and administration allowed these giant businesses to become even larger so that we now have no idea as to what kind of giant government operation and regulations are going to be needed for keeping these operations on the straight and narrow.

Obama and company is already being criticized for the US government getting involved in health care reform and for the previous stimulus packages. (Even though the largest chunk of uncontrolled financing came from Bush´s Sec. Paulson.) Now what is the new administration going to have to do to ensure that they have a handle on the appropriate regulation of Wall Street…? And will the "Wizards" just come up with a new "Bait & Switch" program to replace their past major movements of their greed and financial deception.

The Obama Administration, the Fed, the Treasury and the Congress have all got to get together for making sure that Wall Street and the banks serve the US economy, and not just the insatiable need for Wall Street´s greed and abuse. But so far, all that I´ve heard is that the current administration´s proposals are tantamount to the "protecting of nuclear devices with sling-shots". As Mr. Robinson wrote, "Putting more security cameras around the [Wall Street] casino isn't nearly enough."

I share Mr. Robinson´s concerns.

Copyright G.Ater 2009

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