30 Sep Channeling Eisenhower
No doubt Romney and Obama each sincerely believe the other has the wrong idea of how to restore America to economic health. But, most of the narrative about the economy (is better, is worse) is sheer nonsense. We voters know it, and they know we know it.
The true cause of our economic woes is the decoupling of the real economy from the financial system. It has been nearly 40 years since the commercial banks morphed into investment banks, ceding their credit function to the credit rating agencies; and nearly 10 years since the credit rating agencies switched allegiances from the buy side to the sell side.
Today, neither government investment nor QE can put the asset and liability sides of our private sector balance sheet (a.k.a. the economy) back together again. Since the path of capital to and from the real economy is as haphazard as national transport before President Eisenhower pushed for the Interstate Highway System, we must forge new, well-designed linkages between the economy and the debt capital markets.
The U.S. desperately needs a president with Eisenhower’s vision and his commitment to America’s future to take the lead on repairing our financial system infrastructure:
- Someone who sees that the criss-crossed financial channels running through our economy need strengthening and standardizing.
- Someone who recognizes that our financial marketplace cannot be governed by building walls that restrict corporate financial activities, any more than modern towns can be controlled by a system of walls and moats. (Any good master’s level finance student can evade such controls using OTC derivatives.)
- Someone who knows reflexively that to govern a 21C financial marketplace means, standards need to be set on how risks are to be measured, and appropriate “speed limits” (i.e., yardsticks that match leverage to credit quality/default risk) must be promulgated and enforced.
- Someone who is not afraid of posting these limits in clear view of the public, so that market discipline and vigilantism can work alongside regulatory enforcement.
Glass-Steagall is an anachronism, but the need for better financial market infrastructure and standards-setting has never been more compelling. We need a president who is willing to champion it, for the general good.