With health-care legislation finally out of the way, President Obama and the Congress will turn next to badly needed financial-reform legislation. The main bills to be considered are being shepherded by Sen. Chris Dodd and Rep. Barney Frank.
The bills, as they now stand, appear far too charitable toward Fannie Mae, Freddie Mac, and too-big-to-fail financial institutions, which have eaten so many taxpayer dollars. There are many issues to be addressed in the legislation. Already, affected industries are pouring big dollars into lobbying and information campaigns.
To understand better some of these issues, I recommend reading Joseph Stiglitz's recent book, Freefall: America, Free Markets, and the Sinking of the World Economy (W.W. Norton & Co.).
Recent lengthy articles in the Atlantic Monthly and New Yorker have dealt with some of these issues, relying in large degree on information from Treasury Secretary Tim Geithner; they amount, in the end, to Geithner puff pieces. Our financial system was approaching failure, and the real economy reeling, these accounts have it, and could have collapsed had it not been for Geithner's arrival from Planet Krypton during the late George W. Bush and new Obama administrations. Yes, taxpayer money was wasted, and some big institutions were probably extended unjustified support, but that was a small price, the argument goes, for saving us from ruin.
Stiglitz is a tough-minded, blunt guy who is University Professor at Columbia University. He has served as the World Bank's chief economist and was chair of the Council of Economic Advisors in the Clinton administration. He has won a Nobel Prize in economics.
(A Nobel Prize in economics ain't hamburger. But those who have won it, over the years, range all over the lot ideologically. Often the awards have to do with arcane, technical work not related to broad public policy. Nobel Prize or not, writing and talking economists have the same political biases as the rest of us and are not necessarily The Last Word. Stiglitz's politics are those of a pragmatic liberal. I have admired his work and his common sense over many years).
Put Stiglitz down as fed up and not prepared to take it anymore. He is impatient that real financial reform has been delayed this long. He is not a big fan of Geithner's or of White House economic czar Larry Summers, much less ideologues who claim that markets should left completely alone and will resolve their own problems (bringing to mind the old remark that "the operation was a success but the patient died").
Stiglitz also is tough on the Federal Reserve as an institution, and he questions current proposals to give it enhanced authority. Stiglitz's critique of the Fed is deserved but, given the options facing Obama and the Congress, it still would appear to be the strongest and most independent institution among the many involved in the sector.
Financial-reform debate will take awhile. Partisan feelings still run high after the long and fractious health-care debate. There are legitimate and unresolved big questions about how and by whom our financial system should be regulated. Stiglitz's new book takes them on in a direct and readable way.