Consent of the Governed

Matt Stoller has yet another must-read post at Naked Capitalism, this time covering the role the slow trickle of information coming out about the choices made to bail out Wall Street during the collapse of 2008 as a means for priming the pump for more meaningful reform and the establishment of transparent structures in the future. Stoller writes:

As emergency lending information is released, one can almost hear the laughter from big banks executives.  They won, or so they think.  Yet, the reputational damage from the crisis to Wall Street is at this point enormous, both within banks and among the public at large.  The specific documents released over Bear Stearns will probably show what we already know – excessive deference to banking interests.

The situation right now feels depressing.  Wall Street mega-banks, and the Federal Reserve officials in charge during the collapse, are more powerful than ever.  Ultimately, the consent of the governed does actually matter.  Markets do not work when there is effectively no rule of law, or rigged rules.  That is what we may be seeing in housing, with cultural shifts away from home-buying.  The next crisis, and it is coming, will see wholesale reform of the Federal Reserve and the banking system.  The public has noticed that the arguments from big banks are both untrue and self-serving, and that the Federal Reserve’s vaunted independence is simply more of the same.

The Fed and the concentrated banking interests took advantage of a deference to authority and a reservoir of trust that the public had in the system.  That trust was key to achieving what they needed.  But it is now tapped out.  And the next time that consent is necessary, it just won’t be there.

There’s actually a contradiction here. If Wall Street has walked away from 2007-2008 with more power than ever — and they have — then the chances that more dramatic reforms will emerge out of the next financial crisis seem diminished. There are two threads at play here. On the one hand, I think Stoller is right and there is tremendous skepticism from the public about big banks and their demands on the rest of us. Protests against austerity measures at the state level, including union busting, are a testament to that, as is the growing US Uncut movement. But Wall Street has not only grown larger, with bigger bonuses and bigger profits, but they’ve demonstrated an ever-increasing degree of political and regulatory capture. In the next crisis the tension between public skepticism of the current financial system and bank-sympathetic elites in DC will come to a head. I don’t know which side will win out. While I hope that “the consent of the governed does actually matter,” it’s not clear to me that it has over the last three years. But as more information comes out from the financial collapse and the public continues to gain awareness of how we were fleeced, there’s an opportunity for organizing for real reform. The obvious question is, “Who will lead this organizing? Will it be elected officials? Unions? Or grassroots community organizations?”

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