Two years ago, a relative handful of economists and bankers understood what a financial derivative was. At that time, the rest of the public might have had a vague understanding based on their high school calculus class, and understanding that would have been wrong. Today, two years later, most of the public has heard the term “derivative”, and the majority still don’t know what it means. To listen to the news, one might think that a derivative is a gift from Satan; our modern world’s version of the apple from the tree of knowledge.
As much of the language in the soon to be signed financial reform bill is directed at derivatives, I think it is time for the public to learn the nature of the fruit. In our great financial conflagration, derivatives weren’t the the campfire or the careless campers; some of them were, in fact, the hot and dry wind that whipped up the blaze into the forest fire. Federal financial policy, as executed by three Republican presidents, one Democratic president, and two chairman of the Federal Reserve Board set the board up. Our consumer appetite, helped along by opportunistic realtors and mortgage lenders, put the board in motion. Some classes of derivatives served to take the crisis from economic catastrophe to potential worldwide economic failure.
The news today is dominated by a handful of terms; bailout, financial reform, greed, regulation, crisis, and too big to fail spring immediately to mind. The very existence of the Tea Party movement, or at least the anger being exploited by the organizers of the Tea Party movement, owes itself to the financial meltdown of 2008 and the bailouts that followed. Often called “populist anger”, the emotions are loaded with all the confusion, yelling, and uncontrolled swinging attendant to street fighter losing a brawl.
Perhaps the most perplexing issue in politics today is financial reform. On its face, “reforming” our nation’s financial markets is as close to a universally popular measure as any domestic item gets. Democrats, Libertarians, and Tea Party Conservatives all want to see something done. All of the above were/are outraged by the bailouts, and all, for the most part, agree that greed and corruption are the roots of the problem.
The difficulty for we the people lies in the following fact; Democrats, Libertarians, and Tea Party Conservatives hate to agree on anything. We have come to a point in our democracy where the notion of acknowledging and building on common ground is considered to be akin to a sin. Compromise has become a dirty word, compared to appeasement with the Nazis and negotiating with terrorists. We Americans, all of us (including yours truly), are guilty of turning our back on well made points for the sake of winning an argument. I propose that we adopt this issue as the fulcrum for changing the paradigm.