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Even with Wall Streets lobbyists fighting it tooth and nail, financial reform seems inevitable.
So the question becomes: Are we going to get real reform or are we going to get the D.C. version of reform i.e., reform in name only?
We have seen this movie before, just a few years ago. Back then the stars of the show were Enron, Tyco, Global Crossing and WorldCom. After their orgy of greed and fraud was exposed, everyone suddenly demanded reform. But what we got instead were window-dressing changes and Band-Aid legislation. And the prevailing philosophy that the free market would regulate itself was, in effect, allowed to remain in place. Indeed, the marketplace was given even freer rein.
So now its déjà vu all over again. And the financial culprits believe that if they just lie low for a bit, the storm of outrage will blow over. They can just wait it out, feed the people a few reformist scraps, and then return to the party, as they did the last go-round. And they may well be right.
If were really going to protect taxpayers and create a more stable economic system, the most important reform is to never again be held hostage by institutions that pose a systemic risk and therefore have the power to tell us: If you dont give us the money, were going to blow up the whole system. Actually, what we have now is worse than a hostage system because in a classic hostage setup, after you pay the ransom you get the hostage back. Weve paid more than a kings ransom, but have not taken the hostage our financial system back from the banks.
Obamas idea of giving the Federal Reserve Bank more regulatory power wont be enough. Is there anyone out there who really thinks that the Fed, which just delivered an epic failure in both its monetary policy and regulation of banks, is the best choice to become our top financial watchdog?
And we certainly shouldnt expect anything heroic from the Securities and Exchange Commission, which was so weakened during the Bush years that it is now too far gone to be saved even by a good commissioner like Mary Schapiro. To call the SEC a cesspool of incompetence, inefficiency, ineptitude and disorganization would be an insult to cesspools everywhere (see its recent slap-on-the-wrist settlement with Bank of America, which was rejected by a heroic judge who called the deal a breach of justice and morality that suggests a rather cynical relationship between the parties).
In capitalism as envisioned by its leading lights, including Adam Smith and Alfred Marshall, you need a moral foundation in order for free markets to work. And when a company fails, it fails. It doesnt get bailed out using trillions of dollars of taxpayer money. What we have right now is not capitalism but corporatism. Its welfare for the rich. Its the government picking winners and losers. Its Wall Street having its taxpayer-funded cake and eating it, too. Its socialized losses and privatized gains.
If we are going to truly rebuild our free market capitalist system, we have to break the cycle of shock, followed by outrage, followed by a few high-profile show trials, followed by the punishment of a few culprits, followed by some meaningless reforms ... and then we all move on. Until it starts again.
The question is, Does the political will to implement a fundamental reform of Wall Street exist, or will the result be a series of tough-sounding-but-ultimately-toothless reform measures that allow the cancer of greed and corruption that has infected our political and financial systems to spread and become even more destructive?
Does our body politic have the strength to save itself?
Arianna Huffington is the co-founder and editor-in-chief of the Huffington Post.