Financial "Reform" - Pablum, Confusion, Dishonesty
05/21/10 - Clean Government Now
Via Power Line
- The bill is only tangentially related to the financial crisis.
- This large, confusing, and ill-considered bill favors only one constituency: those rich enough to afford the legal team needed to craft a compliance regime.
- The bill does nothing to address bi-partisan criticisms of the last "reform" attempted by Sarbanes, Oxley, and Spitzer. Prior "reforms" all but ruined the market for small company stock and the venture investment business that depended upon it.
This bill takes another step toward a European regime of political cronies in control of national investments (think Greece).
This bill regurgitates the nausea-inducing political spin, that the financial crisis was the result of "wild speculation" and "exotic instruments" on Wall Street. In fact, the crisis resulted from losing $2 trillion worth of fake AAA mortgage securities. $2 trillion is 14% of total US production for one year, or about 2 months income for everyone in the US. The crisis was supported by
- Shaky insurance from a politically connected AIG,
- Financial ratings granted by a few government-favored companies filled with "experts" of the kind this new bill relies on, and
- Government-sponsored Fannie Mae and Freddie Mac buying up shaky mortgages [convincing most participants that they were safe].
This bill responds to every ill (perceived or real) by creating another sclerotic, disconnected, and flat-footed federal agency, filled with turf-meisters having too much authority and too little experience.
We could recognize the power of free markets, empower the native interests and intelligence that drive the vast majority of American business leaders, and enable true enforcement of the rules of the road.
Instead, this bill brings the vain courtiers and vapid egoists of the political court onto the center of the economic and financial stage. Read Alice in Wonderland as your guide.
The effect of losses in housing wealth is painful, but does not explain the full depth of our current crisis. The loss from bad housing loans is $2 trillion. The effect on housing prices is worse, reducing the market value of US housing by $3.8 trillion. Together, that $5.8 trillion is about 5 months of total national income at $14 trillion per year.
That would be bad enough, requiring many people to change what they are doing (change jobs) to meet the national need to save more, to replace what was lost. Worse, our government has reacted by increasing spending, making it harder to save and produce what people need now. This has deepened and lengthened the pain.
Obama and Democrats are spending money on larger government bureaucracies, higher government salaries, and building roads and bicycle paths. That cannot possibly be the way to create greater wealth for the average person.
Stimulus Does Not Cure a Recession
Jobs change when people change what they want to buy or can afford. It is possible to keep people at their low-value or unneeded jobs for a bit longer, only by wasting the savings that should be financing a real recovery.