The judge’s reversal is clear but disturbing. His decision reminds us how much damage a generation of Reaganomics has done to American democracy and capitalism. Judge Posner’s new book echoes the self-repudiation of another long-time defender of free-market Reaganomics, former Fed Chairman Alan Greenspan, who admitted before Congress last year his assumption that “the self-interest of lending institutions” would ”protect shareholders’ equity” failed in 2007 when the “modern risk-management paradigm that held sway for decades … the whole intellectual edifice … collapsed.” Killing the Glass-Steagall Act was a disaster of monumental proportions. Now, another long-time defender of free-market Reaganomics has reversed his position. Check out Paul Barrett’s BusinessWeek review of The Crisis of Capitalist Democracy, the new book by Richard A. Posner, “prolific federal judge and University of Chicago economist.”

Posner has steadfastly fought the regulation of markets—until now … Posner ”argues that competitive forces inspire financiers to take irrational gambles—especially when they’re betting other people’s money. We cannot trust them to put the common good ahead of profits, says Posner. As a result, government must step in to limit the risks bankers take and, occasionally, repair the damage they inflict.”

Yes, Posner, long-time defender of the Reagan/Bush era “free market” capitalism now admits “we cannot trust Wall Street to put the common good ahead of profits,” the “government must step in” … and regulate! Get it? The judge is admitting in open court that Reaganomics’ “free-market” capitalism failed American democracy. (More)

Under Chris Cox’s weak chairmanship, critics characterized the SEC as a combination pro-management training camp, graduate school and employment agency. Why? Most of their alumni go directly to work as fund and securities industry insiders, directors, ICI staffers, legal counsel and lobbyists. So it‘s no wonder they all have close working relationships, before and after. This regulatory agency operates like the classic three monkeys who ‘see no evil, hear no evil and speak no evil,’ especially when it comes to acting in an oversight capacity of mutual fund managers exercising controls over Washington politicians, Congressional committees and also staff regulators at the Securities and Exchange Commission.

“The fund industry’s moral compass is broken” said John P. Freeman in his Senate testimony. Freeman, a former SEC staff attorney, professor of law at the University of South Carolina, and along with Eliot Spitzer and Jack Bogle, is one of the SEC’s loudest critics. Freeman was echoing an indictment similar to one made a year earlier by Don Phillips, managing director of the highly respected Morningstar fund data trackers. (More)

“We have a once-in-a-lifetime opportunity to effect genuine change given that the general public is disgusted with the financial system and none too pleased with Congress,” says Jeremy Grantham, founder and chief investment strategist of the $100 billion GMO money managers. But unfortunately the new “administration, which came in on a promise of change, for heaven’s sake, is so determined to protect the status quo of the financial system at the expense of already weary taxpayers who are promised only somewhat better lifeboats.” Our current approach to financial reform, says Grantham, is like building Titanic II using the original plans. Here’s what’s behind this drama.

For months former Fed Chairman Paul Volcker (now head of Obama’s Economic Recovery Advisory Board) has been warning Washington that Wall Street’s “too-big-to-fail” banks are back to their old ways. Glass-Steagall should be reinacted. “The banks are there to serve the public,” Volcker told Congress, that’s “what they should concentrate on. These other [risky] activities create conflicts of interest. They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties and will fail.” So Washington is helping Wall Street rebuild the Titanic. (More)