Magazine article The American Prospect

The Long and the Short

Magazine article The American Prospect

The Long and the Short

Article excerpt

THIS MONTH, THE PROSPECT GOES BOTH LONG AND short. In the print magazine, we address what the Democrats, if they win both the White House and Congress next year, should do about the profound, long-term challenges confronting America. Online, we are providing continuous reporting and commentary on both parties' primary contests, to which end we are dispatching our reporters to all the key early states. You can find all our election coverage at www. prospect.org/election.

Should the Democrats take the White House next year, the new president may well have to begin by facing the kind of problem that we're not accustomed to thinking of as long-term: a recession. Economists are now giving even odds that a recession will soon be upon us. My own wager is that if the recession comes, it won't look like any of the recessions we've had since World War II. Indeed, ending this recession may require the kind of far-reaching economic reforms we've not seen since Franklin Roosevelt tackled the Great Depression.

Don't read that, please, as a prediction of breadlines or of financiers hurling themselves off skyscrapers (though any number of Wall Street CEOs have already been unceremoniously tossed out of their executive suites during the past few months of mortgage-market meltdown). My point is that after 35 years of dismantling the America that the New Deal built, our country now resembles in some perilous particulars the America that existed before Roosevelt became president.

Should recession come, it will be the first since 1929 to be precipitated by a financial sector that's unregulated, deliberately opaque, and fundamentally dishonest. America's largest banks don't even trust each other these days, which is why interbank loans and other forms of liquidity are drying up. As for dishonesty, Goldman Sachs--by common consent, the smartest guys on the Street--seems to have hedged its mortgage-backed securities because it understood that mortgages were about to tank, even as it continued to sell those securities, no warning attached, to all manner of pension funds and other trusting investors. Climbing out of this recession will require regulating all the exotic structures that Wall Street's devised over the past 35 years to elude the regulations that Roosevelt put in place to avoid a repetition of 1929.

And should recession come, the next president may need to focus on a problem that no American president since FDR has really had to deal with: underconsumption. …

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