Non-environmental economics post

© 2010 Joshua Stark

Robert Reich has a blog post up about the need to break up our big banks.  This is pretty unrelated to the environment (except that a lot of money that would have gone to environmental protection went down the toilet or to the big banks and then down a gilded toilet), but I really, really feel the need to link to it.

This is a hugely important issue.  Just over one hundred years ago, big banks had a complete stranglehold on both parties.  The ensuing rise of the Progressive Party was in large part a reaction to this phenomenon.

Today, we see single financial institutions that dwarf our entire economy of that era.  And yet, we question whether or not our system can withstand such behemoths.

It cannot.  In the 1990's, a very important law was repealed, retirement programs shifted en masse from defined benefits to defined contributions, and financial institutions began throwing insanely large amounts of money into housing.  In the 200's, when wages stagnated, the appreciating housing market became a salve and a game of musical chairs at the same time, keeping wages depressed while providing the illusion of wealth.  Meanwhile, unregulated financial institutions carved up shares of housing, and convinced each other that 80% of them are good, and 80% of the remaining 20% is better than the worst, and on and on.  All of these contributed to our current situation.

In response to the crisis, then, both parties did what any sane politician would do - throw the largest chunk of money they possibly could directly at the people and institutions who caused the mess and contributed huge amounts of money to their re-election campaigns.  Now, though unemployment remains unsustainably high, lending remains extraordinarily low, and many more folks with jobs still can't make ends meet, we are told that not only is the recession over, but we must fear runaway inflation!

We are told this so that the huge financial institutions can keep the money we gave them and not have to lend it or pay it out.

Please read Prof. Reich's post.  It is very illuminating.