I was going to post more on the library today, but pressing business kept me busy on other matters. In the meantime, a few comments on the financial upheaval on Wall Street are merited.
Almost all of the major financial events of the past year — the implosion of the housing market, the faltering of Fannie Mae and Freddie Mac, the demise of Bear Stearns, speculating on oil and gas futures, and now the bankruptcy of Lehman Brothers — occurred in considerable measure because regulatory mechanisms were weak or simply did not exist.
Most of our key federal regulatory agencies and institutions — the Securities and Exchange Commission, the Federal Deposit Insurance Corporation — were established during Franklin Roosevelt's first two administrations in response to the banking crises created by the Black Tuesday crash of 1929 and the Great Depression.
FDR's banking reforms were not perfect, but they stabilized our financial system. The bargain was simple and effective. We'll protect depositors, FDR promised, but in return the bankers must submit to regulation and meet government standards.
As the first hand memory of 1929 and the Great Depression faded, as the economy boomed, financiers and worshippers of an unfettered market, began arguing that not only was heavy federal regulation no longer needed, it was impeding economic growth. The solution? Repeal, or at least weaken, Glass-Steagall Act of 1933 and other relics of the New Deal.
These reformers were right on one count: much had changed from 1933. But the most important fact justifying Glass-Steagall and FDR's reforms had not changed. Human nature had not changed. Humankind remains imperfect, producing as always an impressive supply of crooks, liars, fools, and incompetents. Greed, malice, hubris, foolishness — the sins underlying Black Tuesday and the 4,000 bank failures at the end of Herbert Hoover's presidency — are still us. Therefore, the need for comprehensive, effective federal regulation of the financial industry is as strong today was it was when FDR took the oath of office.