OAKLAND — Calling the current proposal a "huge blank check," former Secretary of Labor Robert Reich said Saturday that the government must attach some strings if it allows a massive bailout of Wall Street institutions.
"I'm not against bailouts that are necessary and bailouts that have conditions on them," said Reich, speaking at the Oakland Museum of California about his concerns over an American economic system he said is becoming "capitalism on the upside and socialism on the downside."
The former Clinton administration official, now a professor at UC Berkeley and among a group of economic experts who regularly advise presidential candidate Barack Obama, placed much of the blame for the current crisis on "years and years of deregulation" under the Bush administration.
"That ideology, that set of approaches, has failed," Reich said. "To think there is a free market that exists in some state of nature, as some market fundamentalists do, is simply wrong."
In a wide-ranging public conversation with Rep. Barbara Lee, D-Oakland, Reich also said the Clinton administration he worked for shares some responsibility, particularly for the 1999 repeal of the Glass Steagall Act that had separated commercial banks from stockbrokers since 1933.
"It's a crisis of trust," he said, not just one of liquidity or solvency."
This week, Congress must vote on an emergency Bush plan that would pump as much as $700 billion into bailing out Advertisementmortgage markets. Reich, preferring a solution such as a bankruptcy reorganization that keeps taxpayers out of the equation, said he worried that a failed bailout measure could spend trillions of taxpayer dollars yet lead to more overseas borrowing, send domestic interest rates soaring, drop the value of the dollar, raise the cost of borrowing abroad and ultimately lower the American standard of living.
Whatever solution is reached, he said, should be coupled with better regulations that discourage the "huge, irresponsible decisions" that led up to the current problem.
"When a lot of money is sloshing around, ... some really stupid things are going to happen," said Reich, describing some of the minimally regulated, careless financial practices of the past decade. "When interest rates go down so far and money is so easy to get access to, what you need is regulation and oversight."
He called for more disclosure, so that market participants can better know what they are buying and selling; minimal capital requirements, so that more reserves are in place before institutions can make bets; better rules against conflicts of interest; and protection against market manipulation, and especially short-selling, that can drive the entire system downward.
Lee, on a short break before returning to the Capitol, where the Bush administration has asked lawmakers to act quickly this week on the bailout plan, expressed agreement with much of what Reich said on Saturday.
On some fronts, she took the failed oversight arguments a step further, arguing that "some criminal charges should be brought forth" against Christopher Cox, the former Orange County congressman who heads the Securities and Exchange Commission. John McCain, the Republican candidate for president, has said he would fire Cox.
Both Lee and Reich, who say they are friends, spent much of their discussion promoting a "bottom-up" rather than a trickle-down approach to economic growth.
"We're trying to put FDR's legacy, his policies, front and center in this debate," Lee said.
While hesitating to compare the current crisis to the Great Depression, Reich said income inequality is greater now than it has been since just before the stock market crash of 1929. In 1980, he said, the top one percent took home eight percent of income; today, they take close to 20 percent.
Before the Depression, he said, "income had become so skewed toward the wealthy that there was not enough purchasing power by the vast middle classes."
Speaking to a supportive crowd at the Oakland Museum that cheered liberal causes and cackled at mentions of Republicans, Reich on several occasions mildly scolded his audience, saying the serious topic at hand "is not amusing."
"We are not sufficiently respectful of each other," he said.
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