Has the economic integrity of the United States of America been reduced to the level of a banana republic? This theme is recurring through many channels. In the midst of a daily perspective, one may quickly and strongly dismiss such claims as overhyped libertarian fearmongering. I do not put myslef in that camp, but I do take pause to reflect on the long term implications of actions and programs enacted throughout our economic crisis.
Sin-Ming Shaw, a Thought Leader, provides sobering and thoughtful commentary on this topic in his article, “America’s Crony Capitalism.” While we all would like a swift, strong, and fast economic recovery, Shaw addresses the lack of integrity and transparency in the process. Many would maintain that “we did what we had to do” or similarly “these ends justifies these means.” I strongly believe the costs have not yet been paid, continue to accrue everyday, and will be astronomical over the long haul.
Shaw provides insights on the Bank Stress Tests:
The government had allowed bankers to “negotiate” the results, like a student taking a final examination and then negotiating her grade.
The truth is that the tests were not designed to find answers. Both Wall Street’s chieftains and the Obama administration already knew the truth. They knew that if the true conditions at many big banks were publicly revealed, many would have been immediately declared bankrupt, necessitating government receivership to stop a tsunami of bank runs.
Wall Street’s titans, however, had convinced Obama and his team that their continued stewardship was essential to getting the world out of its crisis. They successfully portrayed themselves as victims of a firestorm, rather than as accessories to arson.
Strong and indicting charges put forth by Shaw. The fact is, though, he is accurate in his analysis. Washington and Wall Street have sufficiently agreed in their assessment and analysis of this crisis. They have conspired on their entrance to solution. They will debate their exit knowing full well they are joined at the hip in the process.
The necessary rigor to expose and unearth the crime and criminals is severely lacking. Despite talk of a Financial Inquiry Commission, word from Washington is that stall tactics, turf wars, and partisan politics will once again rule the day in forestalling the needed indictments and prosecutions, both literally and figuratively, of those involved in this mess.
Our “Washington wizards” may declare short term victory (Austan Goolsbee interview yesterday), and point to recovering markets as evidence. Those who may care to look at the world from a larger and longer perspective, fully appreciate that history will judge this time using a different measure. Shaw asserts:
The world also wanted to see the US retaking the high road in reinforcing business ethics and integrity – so lacking under the last administration. As taxpayers had already put huge sums into rescuing failing banks, with the prospect of more to come, a transparent process to reveal how the money was being used was imperative.
All this said, our future for now is both clear and murky. The Obama administration, as well as the Bush administration, sacrificed integrity in the name of short term bank solvency. The efficacy of this move will be debated for years. The fact is, though, the cost of such a move is not fully appreciated. Shaw summarizes as much:
Like swine flu, crony capitalism has migrated from corrupt Third World countries to America, once the citadel of sound public and private governance. Is it any wonder that China is perceived as an increasingly credible model for much of the developing world, while the US is now viewed as a symbol of hypocrisy and double standards?