Shame on Us: Why Serious Financial Reform is Necessary

Fool me once, shame on you…

During a global economic recession when unemployment rates soared into the double digits, optimistic news arrived Friday as the Bureau of Labor Statistics announced that “Nonfarm payroll employment increased by 162,000 in March.” President Obama considered this accomplishment a promising indication of economic recovery and said that “today is an encouraging day.”

While this may be a political victory for the President, this progress represents only a diversion from the underlying issues that induced our economic downtown. The invisible hand has proven itself as an inadequate defender of the consumer and the market against the Corporate Elite’s greed, and strict regulation legislation must be passed with immediate urgency to prevent history from repeating itself.

Fool me twice, shame on me.

With Health Care Reform complete, Obama could have leveraged his success and pushed for Congress to take immediate action on financial overhaul, but it appears that the Special Interests have once again succeeding in delaying necessary policy. This week’s announcement permitting off-shore drilling may have appeased the needs of oil conglomerates and various other industries too complacent to adapt to greener energy, but it also served the Wall-street Lobbyist by redirecting the public discourse away from the financial sector. Like any other piece of reform, the longer regulation legislation takes to pass provides extra opportunities for corporations to abuse the current system. Hence the Tea Party slogan “kill the bill!”

Politics and lobbyist aside, why is financial reform necessary? In the world of business without ethics, money talks much louder than the consumers. The customer is simply a commodity and business executives want to deplete these resources as fast as possible, just like with the environment. From a corporation’s perspective, the only reason to incentive behind quality control is to ensure high marketability through a trusted brand name. As long as the legal costs of damage settlements are offset by successful sales, corporations will focus on achieving a profitable bottom line and ignore the burden of externalities for as long as possible, regardless of the severity. Capitalism 101: serve your own self-interest.

Big Tobacco epitomizes the quintessential culprit of ignoring consumer consequences, but Toyota’s recent transgressions exemplify this behavior in today’s global market. For more than three years, Toyota has suspected that their computer systems in many of their most popular models occasionally cause uncontrolled accelerations, but in 2007, they were able to shift the blame onto malfunctioning floor mats and gas pedals. Their accountants predicted that by avoiding a large scale recall, they would save $100 million even after calculating in the settle costs of potential lawsuits.

Toyota’s CEOs endorsed this plan, and if it was not for an increase in the frequency of the defects combined with efforts by the Obama administration, they might have gotten away with it. After an 8 million car recall, multiples lawsuits, congressional investigations, and a 9% decrease in sales during February, the $100 million savings their accountants promised has quickly become a $2 billion loss as the safety concerns, like their vehicles, pile up.

Fifty-six deaths have been attributed to Toyota’s neglect.

While Toyota’s future is in question because of the very public nature of the problem, most of our financial institutions received impunity from equally grotesque crimes that have crippled not only America, but the entire world. When America’s economy collapsed as a result of high risk business maneuvers that emphasized short-term gains, it triggered a global recession. Financial foresight either didn’t exist or was conveniently ignored.

Decisions were made by the upper-echelon elitist in Corporate America seeking immediate fortunate at anyone expense. After managing to convince the government that these institutions were too big to fail, many of these individuals retained their jobs and reaped the rewards of keeping their money afloat by taking huge bonus. The average CEO compensation dropped a miniscule 8.6% to $9.81 million, but this was because CEOs elected to cut their stock options and dividend reinvestments since they knew their decisions were driving their companies into the ground. Instead, they felt they needed to reward themselves by increasing their cash earnings increased by 8.3% during a global recession. They are rewarding themselves with tax-payer dollars for being too big to fail, and now they are only bigger. Capitalism 101: serve your own self-interest.

To protect the public’s interest, financial reform must ensure that true capitalism – based on hard work, honest investments, and innovation – trumps the fraudulent practices that jumpstarted our economic avalanche. Any sort of legislation passed through our government must provide transparency and reveal the corrupt corporations for the culprits of chaos that they are. This will allow the watchdogs of our culture to perform their responsibilities and allow the American people to be the jury and executioner of all deceitful practices

In order to perform this sort of legislations, regulators must have the independence and freedom to perform their duties without being influenced by the interest of the corporations. Leader of the Senate Harry Reid’s current proposal places the suggested Consumer Protection Agency under the thumb of the vary agencies it is meant to protect against. The department would receive its funds from the financial industry, so it would be subject to the whims of the Corporate Elite. This will jeopardize their role as protectors of the public’s interest and make their role futile.

Finally, a bill must ensure that the financial industry be a tool of the people to promote progress, not vice versa. In the past, banks have taken the money of the people and invested them into high-risk ventures without informing the people of these backdoor deals. It was the people’s money without their consent that was abused by the will of the greedy, and American’s had no idea of the risks they were embarking in.

Current proposals may stop the bleeding and provide superficial reform, but without these measures, the people will be subject to suffer the same pains of second recession. Meaningful reform, however, will mandate serious regulation that serve the will of the public’s interests, and not just the CEO’s of Wall Street.