We Know What to Do - Let's Do It!

Isn't it striking how every politician in Washington DC can eloquently riff on what is wrong with the U.S. political system and yet the system continues in a highly dysfunctional state?  This points up the well-known and frustrating fact that people know what to do to take steps to regain functionality but the will is lacking.  Sort of like dealing with an accident-prone teenager walking around with a cell phone glued to his ear.

Thomas Friedman (of whom I'm not especially a big fan) bluntly makes some recommendations on banking in "Did You Hear the One About the Bankers?":

1) If a bank is too big to fail, it is too big and needs to be broken up. We can’t risk another trillion-dollar bailout. 2) If your bank’s deposits are federally insured by U.S. taxpayers, you can’t do any proprietary trading with those deposits — period. 3) Derivatives have to be traded on transparent exchanges where we can see if another A.I.G. is building up enormous risk. 4) Finally, an idea from the blogosphere: U.S. congressmen should have to dress like Nascar drivers and wear the logos of all the banks, investment banks, insurance companies and real estate firms that they’re taking money from.

These are basic recommendations.  OK, maybe #4 is a bit extreme - but that's the blogosphere:).  Still, you don't need a PhD to grasp the thrust of Friedman's recommendations, but that's the case for most sensible policy.  For example, it doesn't take an Einstein to understand that there should be a law that you can't buy a house without at least a 15% down payment - period.  But nobody stood up and said the crazy mortgages leading up to the housing crisis were the stuff of a global meltdown.  In fact, one theory says that those outside of politics who recognize the ramifications exploit them by their trading prowess. This was evidenced by the fortunes made by those who analyzed mortgage data and shorted securities bogusly rated AAA when they were comprised of obvious (except I guess to the rating agencies) toxic debt.

But it is also the case that sensible policy many times pulls the gravy bowl away from special interests who profit at the expense of the public.  I believe the "Occupy Wall Street" movement and the Herman Cain ascendency are telling politicians they better get this if they want to get elected.  In fact, we may have reached the point where those in power need to step on some "third rails".