Deregulation, it appears, is not all that it's cracked up to be

Be careful what you wish for Mr. and Mrs. Deregulation. Losing 50% of your retirement nest egg is one thing. But if your son or daughter ends up working in the mines of Massey Energy or on the deepwater platforms of BP/Transocean, you might want to think twice about the potential real price of deregulation

Note: A widely accepted definition of "insanity" is doing the same things over again and expecting a different result. Rocky Boschert takes a look at some of the colossal failures associated with most every politicians favorite answer to the nation's economy in good times and bad: Deregulate! Makes one wonder, why, anymore? If deregulation worked as it should, then why is everything so danged expensive? Why do our deregulated industries keep moving their factories and jobs out of the country? Maybe deregulation isn't everything it's cracked up to be. The insanity part of it certainly is getting old. Perhaps, for the common good, we should all try learning new lessons from that old phrase made famous by John Dickinson and George Washington, 'United we stand, divided we fall.'

By Rocky Boschert
Financial Editor

The new post-election mantra of the Republican Party is the same old failed Bush era mantra – that corporate regulation is a "job killer." And yes, it is certainly possible to have regulations kill jobs. Yet we are just two years beyond an epic eight years of rapid anti-regulators that killed well over ten million jobs.Why, then, is there not a single word from the new House leadership about investigations to determine how the anti-regulators did their damage?

And while we're at it, why not investigate the areas in which woefully inadequate regulation allows firms to maim and kill, like Massey Coal and BP? Please, let’s finally be honest: Deregulation, de-supervision, and decriminalization (the three "d’s") in fact created the criminal environment that drove the recent U.S. financial crises. It was the three "d’s" that created the epidemic of accounting control fraud that hyper-inflated the real estate bubble that caused the Great Recession. And the Great Recession (which officially began in the third quarter of 2007) shows why the anti-regulators are really the premier job killers in America.

The recent Great Recession was triggered by a larcenous financial contagion that could not have happened without the appointment of anti-regulators to key leadership positions – primarily in industry, but also in government.

The epidemic of mortgage fraud was centered on loans that the lending industry referred to as "liar's" loans. The truth is even an honest regulation-lite leader would have ordered banks not to make these pervasively fraudulent loans. In fact, most of the subprime loans were made by lenders not regulated by the federal government.

Historically, every criminal-based recession – the S&L debacle in the late 80’s, the Enron era frauds, and the 2007 recession – were all driven by epidemic accounting control fraud, i.e. financial deregulation. The regulators are the "cops on the beat" when it comes to stopping accounting control fraud. If they are made ineffective by the institutionalization of the three "d’s", then cheaters gain a competitive advantage over honest firms. This makes markets perverse and causes recurrent crises.

From the mid-Ninety’s to the present, three similar “eunuch” administrations have displayed fear and hostility to vigorous regulation and have appointed regulatory leaders largely on the basis of their private sector cronyism and shadow opposition to regulation. And when these cowardly administrations occasionally blundered and appointed, or inherited, regulatory leaders that believed in actual regulating, the administrations demonized the regulators for doing their job (Arthur Levitt & William Donaldson of the SEC, Brooksley Born of the CFTC, and Sheila Bair of the FDIC).

Similarly, Congress whored themselves to the Wall Street bankers by legislatively trashing the Financial Accounting Standards Board (FASB) accounting rules that made banks recognize their poor business decisions and losses. The purpose of that bit of regulatory thuggery was to evade the “Prompt Corrective Action” mandate which then allowed banks to pretend they were solvent and profitable – so that they could continue to pay enormous bonuses to their senior officials based on the fictional "income" and "net worth" produced by their scam accounting, i.e. not recognizing one's losses, instead using fictional net worth and gross income.

So the next time a Republican or DINO politician, or a libertarian, tells you that regulations kill jobs, ask him or her to look at the past decade and show you real proof. But of course, the typical reaction to such a reality challenge is to blame the prior political regime or the other political party with nothing but insipid talking points and a disgraceful lack of facts. And of course corporate media does nothing to foster a fact-based discussion that holds both political parties accountable.

Be careful what you wish for Mr. and Mrs. Deregulation. Losing 50% of your retirement nest egg is one thing. But if your son or daughter ends up working in the mines of Massey Energy or on the deepwater platforms of BP/Transocean, you might want to think twice about the potential real price of deregulation.

Oh yes, that’s right, you hate trial lawyers as well. It was Bill Clinton’s campaign strategist, James Carville, who in 1992 created the election slogan: “It’s the Economy, Stupid.”

For the 2010 Congressional campaigns, the slogan should have been: “It’s Corporate Crime and Control, Stupid.” Sadly, but predictably, given whom the victors were in the last election cycle, that didn’t happen.