Texas Obervers Editor's note: These remarks were delivered to a meeting of the Texas Lyceum in Austin on April 3, at a debate between University of Texas professor James Galbraith, an Observer contributing writer, and former Majority Leader Richard Armey, chief instigator of the recent Astroturf "tea party" protests. Armey had begun his remarks by noting that his rule in life was "never trust anyone from Austin or Boston," and proceeded to declare his allegiance to the "Austrian School" of economics, a libertarian view that regards public intervention in private markets as socialism.

"It is of course a pleasure to be with you today. I was born in Boston, and I am proud of it. And I have lived 24 years in Austin-and I'm proud of that.

"Leader Armey spoke to you of his admiration for Austrian economics. I can't resist telling you that when the Vienna Economics Institute celebrated its centennial, many years ago, they invited, as their keynote speaker, my father [John Kenneth Galbraith]. The leading economists of the Austrian school-including von Hayek and von Haberler-returned for the occasion. And so my father took a moment to reflect on the economic triumphs of the Austrian Republic since the war, which, he said, "would not have been possible without the contribution of these men." They nodded-briefly-until it dawned on them what he meant. They'd all left the country in the 1930s.

"My own economics is American: genus Institutionalist; species: Galbraithian.

"This is a panel on the crisis. Mr. Moderator, you ask what is the root cause? My reply is in three parts.

"First, an idea. The idea that capitalism, for all its considerable virtues, is inherently self-stabilizing, that government and private business are adversaries rather than partners; the idea that freedom without responsibility is a viable business principle; the idea that regulation, in financial matters especially, can be dispensed with. We tried it, and we see the result.

"Second, a person. It would not be right to blame any single person for these events, but if I had to choose one to name it would be a Texan, our own distinguished former Senator Phil Gramm. I'd cite specifically the repeal of the Glass-Steagall Act-the Gramm-Leach-Bliley Act-in 1999, after which it took less than a decade to reproduce all the pathologies that Glass-Steagall had been enacted to deal with in 1933. I'd also cite the Commodity Futures Modernization Act, slipped into an 11,000-page appropriations bill in December 2000 as Congress was adjourning following Bush v. Gore. This measure deregulated energy futures trading, enabling Enron and legitimating credit-default swaps, and creating a massive vector for the transmission of financial risk throughout the global system. When the Washington Post caught up with me at an airport in Parkersburg, West Virginia, a year ago to ask for a comment on Gramm's role, I said very quickly that he was "the sorcerer's apprentice of financial instability and disaster." They put that on the front page. I do have to give Gramm some credit: When the Post called him up and read that to him, he said, "I deny it."

"Third, a policy. This was the abandonment of state responsibility for financial regulation: the regulation of mortgage originations, of underwriting, and of securitization. This abandonment was not subtle: The first head of the Office of Thrift Supervision in the George W. Bush administration came to a press conference on one occasion with a stack of copies of the Federal Register and a chainsaw. A chainsaw. The message was clear. And it led to the explosion of liars' loans, neutron loans (which destroy people but leave buildings intact), and toxic waste. That these were terms of art in finance tells you what you need to know.

"Dick Durbin knows his way around the Senate. He's been there a long time, long enough to know how things really work. Over the years, the man from Illinois has come to realize that it's not the elected officials who are in charge. Last week, he said it was the bankers "who run the place" acknowledging that Senators may be in office, but not necessarily in power.

"Usually, the people who pull the strings stay in the background to avoid too much public exposure. They rely on lobbyists to do their bidding. They prefer to work in the shadows. They may back certain politicians, but coming from a world of credit default swaps as they do, they hedge their bets by putting money on all the horses.

"They have so much influence because they have been reengineering the American economy for decades through "financialization," a process by which banks and financial institutions gradually came to dominate economic and political decision-making. Kevin Phillips, a one time Reagan advisor and commentator, says our deepest problem is "the ascendancy of finance in national policymaking (as well as in the gross domestic product), and the complicity of politicians who really don't want to talk about it."

"Exacerbating the problem is that the Obama Administration has, in Robert Scheer's words, enlisted 'the very experts who helped trigger the crisis to try to fix it.'

" 'Obama,'  he writes 'seems depressingly reliant on the same-old, same old cast of self-serving house wreckers who act as if government exists for the sole benefit of corporations and executives.'

"Will they be allowed to get away with it? A 'captured' Congress is doing their bidding. There is no doubt that class antagonism is stewing, says the editor of the blog. He expressed a fear of a reaction that will go way beyond flag-wavng tea parties.

"Rice insists that waterboarding is not torture. Why? Rice pulls a Nixon. It was not torture because the president authorized it. In Condiworld, apparently, “when the president does it, that means that it is not illegal.” What lawyer was advising Rice through this process? That’s a pressing question–the Senate Intelligence Committee suggests that legal counsel at the National Security Council was guiding her at every step–and evidently giving her some very peculiar ideas about the law.

"The high expenditure on paying, protecting and accommodating Western aid officials in palatial style helps to explain why Afghanistan ranks 174th out of 178th on a UN ranking of countries' wealth. This is despite a vigorous international aid effort with the US alone spending $31bn since 2002 up to the end of last year.

"The high degree of wastage of aid money in Afghanistan has long been an open secret. In 2006, Jean Mazurelle, the then country director of the World Bank, calculated that between 35 per cent and 40 per cent of aid was "badly spent". "The wastage of aid is sky-high," he said. "There is real looting going on, mainly by private enterprises. It is a scandal."