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Issues of financial reform and regulation can be intimidating to laymen (this layman anyway) because of its insanely complex nature. It is easy to imagine the system as a big Jenga tower, and moving one piece might cause the whole thing to come crashing down. No one wants to be seen as inadvertently - but earnestly! - advocating for a ruinous policy. Of course, that means the opposite extreme is then in play: Turning into Hamlet and endlessly agonizing over what to do at the expense of actually doing something. Not to mention the fact that, not to put too fine a point on it, wide swaths of our leadership has for years now been deliberately advocating ruinous policies both at home and abroad. That should certainly make those of us in the unwashed masses comfortable with forcefully advocating what seems reasonable based on available data. It's not as though we could screw it up any worse.

Still, it would be nice to have a rule of thumb, compass point or guiding principle to go by. Having been a reasonably close observer of the meltdown and its aftermath, here is one I have come up with: It is necessary (but not sufficient) that any proposal be strenuously opposed by Goldman Sachs (GS). In a largely protected industry Goldman appears to be the closest thing to untouchable as we have. It is in Matt Taibbi's already-legendary description "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." It has installed a revolving door between the highest levels of the government and its board room, enjoys privileged lines of communication with the Treasury secretary exceeding even that of our closest allies, was happily positioned as a key competitor died, then days later benefited as a key debtor was drenched in cash (Yves Smith called it a "massive backdoor subsidy to the likes of Goldman"), and as it happens was the second largest contributor to the president in the 2008 election cycle. More so than any other player in financial services, GS always seems to be nearby when bad things happen.

George Washington has another interesting guest post up over at Yves place: Capitalism, Socialism or Fascism? The bottom line:

So what do we really have: socialism, fascism or an economy which calls itself “capitalism” but which allows looting?

Ultimately, it doesn’t matter. They are just different brand names for the same basic type of economy. All three systems allow giant businesses which are friendly to the government to keep enormous private profits but to pass the losses on to the government and ultimately the citizens.

Whether we use the terminology regarding socialism (”socialized losses”), of fascism (”public and social losses”), or of looting (”left the government holding the bag for their eventual and predictable losses”), it amounts to the exact same thing.

I'd argue that any electoral politician* who doesn't make put this simple fact at the foundation of their thinking is doomed to irrelevance -- whether they're left or right. (The center is already irrelevant if Obama had his chance for an FDR moment, and blew it. We won't know whether that's true for awhile, but it sure feels to me like it's true.)

At Yves' place, George Washington asks a question:

The overwhelming majority of derivatives contracts are held by just 5 banks. So are we really basing our entire strategy on CDS on protecting those 5 banks?

Simple answers to simple questions:

Read the whole post from George Washington at Yves place -- the list of 17 experts, regulators, Nobelists, and other DFHs who believe that the economy can never recover unless the banks are broken up is choice. Here's the conclusion:

So the government’s failure to break up the insolvent giants – even though virtually all independent experts say that is the only way to save the economy, and even though there is no good reason not to break them up – is nothing new.

William K. Black’s statement that the government’s entire strategy now – as in the S&L crisis – is to cover up how bad things are (”the entire strategy is to keep people from getting the facts”) makes a lot more sense.

Plus ça change, plus c'est la même chose...