David Korten writes: Events of the past few weeks have exposed the danger of a financial
system devoted to reckless speculation that produces nothing of real
value and, as we are now being told, presents a risk to the whole
global economy. The Bush administration proposes handing $700 billion
to Treasury Secretary Paulson to disburse—without oversight or
review—to those who created the current mess. Spending what many
analysts believe will grow to at least a trillion dollars to prop up
this predatory system for a few more months, or even years, seems less
than a great idea, which hopefully makes this a teachable moment.

We
might start with the lesson that there is an essential role for
government. Market fundamentalists have long argued that markets freed
from governmental interference self-correct. We can now see clearly
that the more Wall Street freed itself from regulatory oversight, the
more its most powerful players manipulated markets and politics to
their personal benefit. The more reckless their risk taking became, the
greater the instability of the financial system, and the greater the
threat to the rest of the economy.

So what
would a healthy financial system look like? Let’s start with the
relationship between Main Street and Wall Street. Main Street is the
world of local businesses and working people engaged in producing and
exchanging real goods and services—a world of real wealth. Wall Street
as it now exists is a world of pure money in which the sole game is to
use money to make money for people who have money—a world of
speculative gains and unearned claims against the real wealth of Main
Street.

Money, an essential medium of
exchange, makes modern economic life possible. In our current money
system, the money that Main Street depends on to facilitate productive
economic exchange and investment is created when Wall Street’s private
banks issue loans. You might say that the business of Wall Street is
creating money. This does not in itself create wealth. Money is only an accounting chit useful as a medium of exchange.
Wealth creation is the business of Main Street. This suggests that the
only legitimate reason for the existence of Wall Street is to provide
an orderly flow of money to meet the needs of Main Street.

Wall
Street performed its appropriate tasks reasonably well so long as
public regulatory authorities put in place subsequent to the financial
crash of 1929 held it accountable to Main Street interests. As it
liberated itself from public oversight, however, Wall Street turned
from serving Main Street to preying on it to generate outsized
financial rewards for its biggest players. It created a mind boggling
variety of “heads I win, tails you lose” financial games. (09/26/08)