What, a Role for Government After All?

Posted on September 18, 2008
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The stock market reversed course and gained 400 points today upon reports that the federal government may create an entity like the Resolution Trust Corp. (RTC) of the ’80s and ’90s to take over corporate bad debt.

What’s that, a role for the federal government? Every time I hear that government is “too big” and serves little useful purpose, I cringe. During the 1930s we recognized that there is, indeed, a necessary role for modern government (apart from raising armies and fighting wars). It’s to monitor and enable the efficient functioning of important programs and markets in the interest of us all.

When the government, the Federal Reserve and whatever other agencies, laid back and allowed the unregulated “derivatives” market to soar, that was a misuse of government – government held in abeyance. “Deregulation” is going to be shown up as one of the more colossal frauds of our time.

When Wall Street gets into scary straits because of unregulated excesses, there are sighs of relief when government officials – the secretary of the Treasury and the chairman of the Federal Reserve belatedly show up – to sort through the turmoil and, hopefully, stop it. “Where’s government been?” frightened folks ask. “Off on the sidelines, sent there by free market ideologues,” is the answer.

Now word that an agency like the RTC in the earlier savings and loan crisis may be created to take debt off the balance sheets of reeling firms prompts cheers. “Bear markets are very sensitive to news. And on a scale of 1 to 10, this one is a 13,” said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York.

We need to recognize that government exists to protect the general welfare, year after year, and maintain balance between the people and greed. If greed powers the markets, it also can ruin people who get caught unawares, or are encouraged to make bad investments, including home mortgages they can’t afford.

Government is, or should be, a balance wheel and safety check, a necessary umpire and regulator of tactics that can go awry and cause enormous harm. It’s role is indispensable, and we ought not to be hearing otherwise from reckless politicians and power brokers.

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