Seven hundred billion dollars, the price tag for the congressionally-approved financial market bailout, is an awful lot of money. It's over $2,000.00 for every single man, woman and child living in the United States. Can there really be that much money loaned to people on their homes who can't pay it back? In fact, there isn't - not even close.  

"Sub-prime" mortgages have become the media shorthand for the cause of the crisis. The blame ends up placed on the greed or stupidity of home borrowers living beyond their means. To some, foreclosure is just the tough-love consequence for those who haven't learned to mind their money. It is also perceived as an "opportunity" by the untold number of acolytes of the foreclosure investment seminar industry. You've seen the info-mercials for these "get rich quick, no-money down, I'm teaching you my secret method" hypes on TV. Rescuing unqualified borrowers from foreclosure is against the laws of nature (or at least the capitalist nature) and deprives these "investors" of the red meat on which they think they can thrive. The image of bad mortgages as the root cause spreads the blame to lots of poor folks or is as diffuse as the American materialist culture - "we're just all responsible," so goes the line. Main Street and Wall Street are joined at the hip, tisk, tisk.

However, sub-prime mortgages are only the very tip of the iceberg that sunk the Titanic-ly reckless unregulated financial markets first enabled during the Clinton administration, and an article of faith for former Federal Reserve Chairman Alan Greenspan and the Bush presidency. As a series recent articles in the New York Times ("The Reckoning: Taking a Hard Look at the Greenspan years, October 10, 2008) points out, such complicated mechanisms as "credit-default swaps" and other "derivatives" grew exponentially from $106 Trillion in 2002 to over $531 Trillion in 2008. By comparison, As of Dec. 31, 2007, NYSE Euronext's nearly 4,000 listed companies represent a combined $30.5 trillion in total global market capitalization. American commercial multi-family mortgage debt is a total of about $3.4 trillion. The total of all single-family home mortgage debt in the U.S. is pegged at $10 to 14 trillion. In other words, the unregulated market in derivitives is over 17 times the value of all of the equity of all the companies traded on the NY Stock Exchange and over 36 times the total of all mortgage debt. Now that's a lot of money - if it were real money instead of a kind of self-hypnotic monopoly money.

The mantra was that these investments were "secured" (as in by mortgages) or "insured" (as in credit-default instruments - standby lines of credit, insurance policies, guarantee contracts, etc.). The basic structure was adapted for public and private colleges and universities, municipalities, public agencies and corporate bonds for debtors whose inability to repay and highly doubtful assumptions became obfuscated in the complexity of the packaging. Multiple transactions and marketing through electronic "book entries" of participating banks and other financial institutions created an environment where no one could be held directly accountable. The bond holders could never identify each other to take effective collective action. A significant motivating factor in how these transactions were structured appears to be avoiding being sued. Bond purchasers were assured not to worry about risk because some other big money institution like AIG or Lehman Brothers or Meryll Lynch was backing up the deal.

Market economics of the kind PT Barnum was most fond was at work. There is infinite demand for loans to buy things the borrowers can't really afford. There is also a lot of capital seeking the highest return possible with the promise of no risk. The financial intermediaries created the Wizard of Odds financial marketplace to supply bamboozle to both sides, with enough wheels and gears, bells and whistles so that no one would notice the man behind the curtain. If they ever did, the mechanism was so complicated and so many players were involved that the chance they would be held accountable is slim to none.

The players may have thought they were really smart and doing great things by making all this money available to everyone, and providing new investment opportunities that never existed before (probably because a rational regulator wouldn't let them, if there had been regulators) Meanwhile the players made lots and lots of money. Now we all pay.

It was like Enron on steroids, except nobody will go to jail because so many players had their specialized roles and no single player can be isolated to assume responsibility. Nobody involved who should have known better wanted to look at the big picture, but just make their hay while the sun shined. Those in power (and whose peers stood to make lots of money) fervently believed that the Market had all the discipline, genius and morality of the Invisible Hand which was far wiser than any regulator, and, at least for Greenspan, above reproach. Regulation - like making sure that the institutions guaranteeing the obligations had the cash on hand to pay if the dubious borrowers actually defaulted (surprise!) - would just kill the Market's magic ability to create wealth for all. The few and the brave who dared mention that the emperor's wardrobe might be empty and at least needed checking into were hooted down and banished from the kingdom. We need to find those plucky Totos who were tugging on the curtain, telling truth to power, while everyone else was mesmerized by the Wizard of Odds' sound and fury. Their skepticism and inside knowledge of how human nature seeks to exploit markets while at the same time protecting itself from accountability that a perfect market (where all participants have perfect knowledge of all the risks as well as the rewards) would in theory demand. This is what the foreclosure fanatics demand for impecunious borrowers. Those responsible for creating the structure and extending it many thousand-fold to every corner of the finance marketplace face no comparable consequence, and likely no real consequence at all.

The peddlers of deregulated/unregulated free-for-all market snake oil (both Democrat and Republican) can count on Congress' two-year, six-year election cycle and swings in party control to dull long-term memory of even recent history. Some may recall that in the late 1970's, deregulation was the promised solution for the doldrums of the Savings & Loan industry. Instead, it facilitated a vast magnification of the problem by allowing S&L's to make loans they weren't sophisticated enough to prudently make, and led regulators to turn a blind eye hoping against hope that the house of cards could be magically transformed into a solid edifice. Instead, a downturn in the "oil-patch" states and recession led to project failures and a piddling $26 Billion taxpayer bailout in 1986-87. Much touted greed and corruption of a relatively few S&L insiders took most of the blame instead of the Congress that passed the deregulation plan. $26 Billion is a lot for tuition, but it might have been worth it if we could have learned something from the experience. Deregulation is no cure all, just as over-regulation can distort and stifle markets.

Deregulation of the airline industry was one area that seemed to generate real gains for the consumer in lower prices, more and better service. Now industry consolidation, the unregulated market's response to thinner margins from competition, corporate and union institutional resistance to change and stress from unforeseen events of 9/11 and poorly anticipated huge spike in fuel prices, shows how vulnerable and transitory those gains may be. Telecommunications deregulation and competition has increased the menu of services and choice among providers, but the household combination of landline telephone, cable or satellite TV, internet access and wireless phone and data services (none of which the typical American appears to be able to do without) occupies an expanded wedge in household budgets of a magnitude unthinkable in 1996. Plain old telephone bills from the Ma Bell monopoly days haven't decreased, and cable TV bills are so inflated the satellite dish folks can afford to give you their equipment to induce you to cut the cord. Did anyone really think in 1996 that paying several hundred dollars per month to be immersed in connectivity in all its many incarnations would seem routine?

In the last 30 years land use and environmental regulation in California has become dysfunctionally complex, divided among a plethora of local, state and federal agencies with competing agendas. Effective reform so that policies as imperative as curbing the human input to global warming and providing decent, affordable shelter to everyone presents a huge challenge. We cannot afford to allow the failure of deregulation and the discrediting of the finance market excesses make reform and simplification of regulation of land use and environmental controls and market-based solutions yet another victim of the current crisis. Markets are historically unstable and prone to manipulation and abuse, causing periodic crises and scandals. Centralized or fragmented regulatory regimes result in huge inefficiencies, threaten basic democratic values and stifle freedom and creativity to develop new solutions. Zealous regulation focused only one critical issue often has unintended consequences, even in meeting the goals that the regulation was intended to reach. In crafting our future we must be mindful of the strengths and weaknesses of each approach to economic activity and not let ideology get in our way of creating policies essential to our survival and greater equity in the quality of life for humankind around the globe.