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Financial regulation needs to favor domestic production

June 28, 2011
David Correll
Letter to the Editor of the Westfield Republican

The circulation of money in the United States financial system serves the same purpose in energizing our economy as does the circulation of blood in energizing our bodies. Each is critical to life. But, while our blood circulating system is self-regulated by nature to keep our bodies healthy, recent failure proves that our financial system, run for profit-making at all cost, rather than to promote production of goods and services, is incapable of self-regulation. Human greed and fear monger are poor motivations for intelligent regulation. After the Great Depression of the 1930s, our Congress fortunately pass the Glass Segal Act to regulate our financial system. Following their nature, financiers then brought forth the fiction that the financial industry is inherently self-regulating and over time Glass Segal’s teeth were pulled to favor the financial industries interests. Ultimately, in 1999, Congress pulled the last tooth of this law, freeing the financial industry to destroy itself, which it did.

Even now while our economy recovers, human greed and ignorance favor less regulation of our financial system, as being the way to recover from its recent failure caused by lack of intelligent regulation. It’s crazy to expect change by repeating mistakes, but it does mirror the reasoning of emotional and intuitive minds when freed from responsibility to our Constitution. The Preamble of our Constitution states that a major objective of our federal government is, “To promote the common welfare.” A reasonable interpretation of this is that a primary economic purpose of our government is to promote domestic employment by the production of goods and services which cost less, last longer and are more productive, thereby increasing the health of our economy, our balance of trade and quality of life for all. When money is invested only to increase wealth, without producing goods and services, very little money “trickles down” through our economy. Money only trickles down by its employment in producing a wealth of goods and services. One way to make money from money is to lend it for a fee. Or, by selling assets at a higher price, then buying a greater amount at lower cost. New technology has provided the way to do this quickly using sophisticated computer systems to track market prices in fractions of seconds. This makes it practical to see at one price and buy more in nanoseconds when a lower price becomes available, betting that successes will be more frequent than failures.

Prior to the recent debacle of our financial system, a subsidiary of The American International Group (AIG), developed such a program to make money by insuring investments in derivatives, which are based upon short term changes in stock and commodity prices. This system was successful at first, creating a rush by financial experts to profit from it and buy bundled real estate and credit card debt as collateral. But this system failed when the collateral proved of questionable market value and could not cover short term losses because of market corruption. By this time, the investments in derivatives were many times greater than the U.S. gross national product. While this crisis affected our wealthy upper class to a tolerable degree, our middle class was devastated and remains so. Our middle class contains the majority of our citizens, is our major employer and produces the goods and services we need to survive and progress. Our middle class was not in good economic health because of the years of financial system diversion of money to investment schemes that did not create employment. This broke our essential economic cycle of producing, consuming, improving and broadening the scope of goods and services to make economic progress. To innovate and prosper, we need financial regulation that favors domestic production of continuously more versatile and economical goods and services.

David Correll,

Westfield resident
 
 

 

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