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Don't Fix Wall Street, Create a New Economy

Congress shouldn't tweak the greed-driven Wall Street machine, it should create a new financial system that answers to communities.

Financial reform is the Congressional political issue of the month. Democrats say their bill will place essential controls on Wall Street to prevent abuse and a repeat of the financial crash. Republicans say it will encourage further Wall Street risk-taking by giving the big banks a guarantee of a future taxpayer bailout if reckless decisions trigger another financial crash.

Each party would have us believe that its side has the better answer about how to prevent another financial collapse, limit future taxpayer exposure, and protect consumers from financial fraud. These are good objectives, but their focus is fixing Wall Street.

No one in official circles seems to be asking the more fundamental question: “How do we create a financial services sector that directs money where it is needed: toward creating living wage jobs that provide essential goods and services for all Americans in ways consistent with a healthy environment?” Fixing Wall Street, as we presently know it, will do little, if anything, to achieve what should be our real purpose. Since the September 2008 financial collapse, Wall Street has conclusively demonstrated that it is concerned only for its own profits and bonuses.

Thanks to the taxpayer bailout and a constant flow of nearly free credit to the big banks from the Federal Reserve, Wall Street is once again reporting record profits and bonuses. Main Street, which has received far more modest public support, has not been so quick to recover from the effects of the crisis: high unemployment, low wages, consumer debt, bankruptcies, and foreclosures. It is a stunning contrast not lost on the properly outraged American public.

Meanwhile Wall Street power brokers resist even modest financial reforms that might prevent a repeat of the collapse. After all, they have little reason to be concerned they've rigged the system to assure that no matter how risky their actions, they will still get their bonuses and taxpayers will pick up the bill. This is a destructive system beyond repair.

Generally, Republicans believe that “too big to fail” Wall Street banks should have been left to collapse as a self-corrective act of market discipline. Democrats would rather forestall another collapse by placing appropriate restraints on Wall Street excesses. On one level, I’m sympathetic to both sides of this particular debate. Another bailout is not acceptable; banks that engage in overly risky behavior should fail; and we need strong government action to forestall a financial crash potentially far more devastating than the one that happened in September 2008.

Neither side, however, is addressing the essential need to replace the Wall Street casino with a new financial system, one designed to provide essential financial services to the Main Street economies we depend upon to meet our daily need for jobs and essential goods and services like food, shelter, water, waste disposal, education, and public safety.

Wall Street is a world of pure finance in the business of using money to make money—by whatever means—for people who have money. Any contribution to the production of real goods and services is purely an incidental byproduct.

Wall Street, in its current incarnation, has no interest in providing true financial services, except as instruments of predatory extraction. In the name of financial innovation, its institutions have perfected the arts of financial speculation, inflating asset bubbles, stripping corporate assets, predatory lending (usury), risk shifting, leveraging, and creating debt pyramids—none of which serves any beneficial public purpose. Rather than being fixed or restricted, most of Wall Street should be shut down. The institutions of a new service-oriented financial system could more efficiently and beneficially fulfill the essential financial functions that Wall Street now controls.