Rick Holmes: A question of trust
America's great, complicated debate on health care reform was, in many minds, a referendum on government. No matter how expensive and inefficient the health care system is, at least half the people became convinced throwing more government at the problem would just make it worse.
The well-heeled opponents of financial reform are using the same template, and the ideological winds are blowing in their favor. A new Pew Research Center study finds anti-government feeling at an all-time high. Just 22 percent of Americans say they trust government most of the time.
The standoff in Congress over financial reform looks like health care all over again. Mitch McConnell is vowing to keep the bill from coming to the floor for debate; Harry Reid is daring the "Party of No" to try and stop him. They must not have read the Pew survey, which found that, over the last year, favorable opinions of Congress have dropped from 50 percent to 25 percent.
After a year of watching Congress at its polarized worst, it's easy to see why ratings have plummeted. The increased distrust of government in general is a little tougher to figure. We haven't seen a spectacular failure of government like, say, FEMA's mishandling of Hurricane Katrina in the last year. With the economy recovering and the stock market surging, government intervention in the economy seems to be working, though at no small cost to the government's own finances.
The growing distrust owes more to rhetoric than events. Republicans who muted their distrust of government while their party controlled Congress and the White House are now free to scream their misgivings. If bad things haven't happened yet -- health care isn't being rationed by government, taxes on the middle class have gone down, not up -- they bemoan the bad things they are sure will happen soon.
But it's hard to pin the worst thing that has happened in the last two years -- the steep recession triggered by a meltdown on Wall Street -- on the government. If anything, that crisis grew from too little government, not too much.
Not that the conservatives haven't tried. For awhile, they were peddling a narrative that blamed the housing bubble and its subsequent burst on Barney Frank, who encouraged Fannie Mae and Freddie Mac to underwrite more housing for the middle class. They tried to blame Jimmy Carter, always a popular target, for signing the 1977 Community Reinvestment Act, which required banks to lend in poor neighborhoods.
The facts worked against these narratives. It turns out that the mortgage brokers who issued the shakiest subprime loans weren't covered by the Community Reinvestment Act, and most of the overbuilding wasn't in CRA neighborhoods. As for Frank, a scenario that traces a global financial crisis to the awesome power of the ranking member of the House Financial Services Committee and the all-powerful affordable housing lobby is a pretty tough sell.
Besides, people couldn't help but notice the Wall Street fat cats sneaking off stage carrying buckets of cash.
Responsibility for the subprime debacle must first be charged to the people who peddled subprime mortgages, packaged them into dubious securities and built a trillion-dollar derivatives industry around betting on their market value. That's the Wall Street gang -- the same people using the clout they purchased in Washington to keep government from spoiling their fun.
The Wall Street gang had plenty of enablers in government, of course, including some of the gang's top dogs. Robert Rubin was chairman of Goldman Sachs before he became Bill Clinton's treasury secretary. In Washington, he pushed deregulation of the financial industry, clearing the way for the kind of shenanigans he later profited from as top dog at Citigroup.
Hank Paulson was CEO of Goldman Sachs in 2004, when he and other Wall Street giants convinced the SEC to loosen the capital reserve requirements, letting them invest $30 for every buck they had on hand. Then he was George W. Bush's treasury secretary when the chickens came home to roost in 2008, protecting his former firm by bailing out AIG, while letting Lehman Brothers, his firm's competitor, crash and burn.
People are right to be mad about the Wall Street bailouts, even if they were necessary to keep the damage from spreading further, and even if much of the money has already been paid back. Those who reluctantly went along with the bailouts expected the Obama administration to get something in return: restraint in executive compensation, help cleaning up toxic assets, cooperation with homeowners threatened with foreclosure, support for reasonable regulation to avoid future disasters.
Instead, the Wall Street gang barely missed a beat, pocketing some of the bailout money, reopening the derivatives casinos and lobbying against government oversight.
Maybe you can't trust government to always do the right thing. But you sure can't trust Wall Street to act in the public's interests. That's why financial reform is a little harder to stop than health care reform.
The banks dubbed "too big to fail" in the crisis have only gotten bigger since. Something must be done to compensate for the "moral hazard" created by the bailouts, because rewarding excessive risk-taking only encourages more. The Democrats' bill, which creates a system for dissolving big investment houses in an orderly way, similar to the system through which smaller banks are broken up when they fail, does exactly that.
McConnell and Senate Republicans are turning the facts on their head, as they did with health care reform, pretending that the bill's provisions to eliminate more bailouts will do just the opposite. They'll say anything to protect their Wall Street friends from the transparency, accountability and oversight that is so obviously needed.
Will they succeed? Probably not. Voters may hate government, but even the Tea Partiers have little sympathy for the Wall Street gang.
Voters may not trust the government to do anything right, but the Democrats who now run the government have more confidence in its competence. Whether Democrats continue to run the government after the elections of 2010 and 2012 depends on their ability to make it work and to change Americans' attitudes on the fundamental question of whether they can trust the government elected to serve them.
Rick Holmes, opinion editor of the MetroWest Daily News, blogs at Holmes & Co. (http://blogs.townonline.com/holmesandco). He can be reached at firstname.lastname@example.org.