Pre-eminent lawyer of the Open Source Movement, Lawrence Lessig attended the Roosevelt Institute’s MAKING MARKETS BE MARKETS  media event March 3rd , on the US  financial crisis .Even with so many luminaries :  Joseph Stiglitz, George Soros, Rob Johnson and  13 other men in suits and new heroine, Prof. Elizabeth Warren, Chair of the Congressional Oversight on TARP. Prof. Lessig filed the report and found he was disappointed. (see our report and video from the event  at www.EthicalMarkets.tv . – Hazel Henderson, editor

Lawrence Lessig, Professor of Law, Harvard Law School, Co-founder of Change Congress
Posted: March 4, 2010 11:07 AM
http://www.huffingtonpost.com/lawrence-lessig/systemic-denial_b_485569.html

I spent the morning Wednesday at the Time Warner building in New York City,
participating in a conference sponsored by the Roosevelt (as in FDR)
Institute titled “Make Markets Be Markets.” I don’t often — ok, ever –
have the time anymore to go to conferences that I’m not speaking at. But
the significance of this subject, and the prominence of the speakers, were
too much for me to resist. And so at the crack of dawn, I scrambled to a 6
AM shuttle to make the 8 AM meeting in Midtown.Everyone recognizes that our nation is in a financial mess. Too few see
that this mess is not simply the ordinary downs of a regular business
cycle. The American financial system walked the American economy off a
cliff. Large players took catastrophic risk. They were allowed to take this
risk because of a series of fundamental regulatory mistakes; they were
encouraged to take it by the implicit, sometimes explicit promise, that
failure would be bailed out. The gamble was obvious and it worked. The
suckers were us. They got the upside. We got the bill.

So in coming to this meeting of some of the very best in the field — from
Elizabeth Warren to George Soros — I was keen to hear just what the
strategy was to restore us to some sort of financial sanity. How could we
avoid it again? Yet through the course of the morning, I was struck by two
very different and very depressing points.

The first is that things are actually much worse than anyone ever talks
about. The pivot points of our financial system — the infrastructure that
lets free markets produce real wealth — have become profoundly corrupted.
Balance sheets are “fictions,” as Professor Frank Partnoy put it. Trillions
of dollars in liability hide behind these fictions. And as expert after
expert demonstrated, practically every one of the design flaws that led to
the collapse of the past few years remains essentially unchanged within our
financial system still. That bubble burst, but we can already see the
soaring profits of the same firms that sucked billions in taxpayer funds.
The cycle has started again.

But the second point was even worse. Expert after expert spoke as if the
problems we faced were simple math errors. As if regulators had just
miscalculated, like a pilot who accidentally overshoots the run way, or an
engineer who mis-estimates the weight of cargo on a plane. And so, because
these were mere errors, people spoke as if these errors could be corrected
by a bunch of good ideas. The morning was filled with good ideas. An angry
earnestness was the tone of the day.

There were exceptions. The increasingly prominent folk-hero for the middle
class, Elizabeth Warren, tied the endless list of problems to the endless
power of “the banking lobby.” But that framing was rare. Again and again,
we were led back to a frame of bad policies that smart souls could correct.
At least if “the people” could be educated enough to demand that
politicians do something sensible.

This is a profound denial. The gambling on Wall Street was not caused by
the equivalent of errors in arithmetic. It was caused by a corruption of
the system by which we regulate those markets. No true theorist of free
markets — and certainly none of the heroes of even the libertarian right
– believe that infrastructure markets like financial systems can be left
free of any regulation, including the regulation of rules against fraud.
Yet that ignorant anarchy was the precise rule that governed a large part
of our financial system. And not by accident: An enormous amount of
political influence was brought to bear on the regulators of these core
institutions of a free market to get them to turn a blind eye to Wall
Street’s “innovations.” People who should have known better yielded to this
political pressure. Smart people did stupid things because “the politics”
of doing right was impossible.

Why? Why was their no political return from sensible policy? The answer is
so obvious that one feels stupid to even remark it. Politicians are
addicts. Their dependency is campaign cash. And in their obsessive search
for campaign funds, they let these funders convince them that for the first
time in capitalism’s history, markets didn’t need the basic array of
trust-producing regulation. They believed this insanity because it made it
easier for them — in good faith — to accept the money and steer financial
policy over the cliff.

Not a single presentation the whole morning focused this part of the
problem. There wasn’t even speculation about how we could build an
alternative to this campaign funding system of pathological dependency, so
that policy makers could afford to hear sense rather than obsessively seek
campaign dollars. The assembled experts were even willing to brainstorm
about how to educate ordinary Americans about the intricacies of financial
regulation. But the idea of changing the pathological economy of influence
that governs how Washington governs wasn’t even a hint.

We need to admit our (democracy’s) problem. We need to get beyond this
stage of denial. We need to recognize that until we release our leaders
from a system that forces them to ignore good sense when there is an
opportunity for large campaign cash, we won’t have policy that makes sense.
Wall Street continues unchanged because the Congress that would change it
is already shuttling to Wall Street fundraisers. Both parties are already
pandering to this power, so they can find the fix to fund the next cycle of
campaigns.

Throughout the morning, expert after expert celebrated the brilliance in
Franklin Roosevelt’s response to the Nation’s last truly great financial
collapse. They yearned for a modern version of his system of regulation.
But we won’t get to Franklin Roosevelt’s brilliance till we accept Teddy
Roosevelt’s insight — that privately funded public elections tend
inevitably towards this kind of corruption. And until we solve that
(eminently solvable) problem, we won’t make any progress in making
America’s finances safe again.

FixCongressFirst. Only then will sensible policy be possible.