Monday, March 31, 2008

Quick Comments on Financial Reform

Well, we're still broke, and it looks like we're going to be more broke. And I think everyone seems to recongnize that the current Administration has had a strong hand in making us broke. At least they're taking steps to fix it, right?


Today, the Bush Administration and Treasury Secretary Henry Paulson announced what it hailed as a major reform of the lending and banking industry aimed at reforming those markets. The reform essentially boils down to collapsing some regulatory agencies into one another, creating larger agencies, and thereby centralizing government financial regulation. It's similar to the creation of the Department of Homeland Security: take a whole slew of government agencies and make them a single unit. Do away with redundancy, if any, and get everyone on the same page.

But, as Paul Krugman at the NYT wrote this morning, it's really just non-action way of addressing the credit crunch that adheres to this administration's extreme free market notions of doing business. He calls it "The Dilbert Strategy." If there's a more common sense way of explaining this "reform," I'd love to see it.

I'll admit that I am fascinated by finance, and I'm slowly making my way through Allen Greenspan's autobiography in an attempt to get a grasp on our modern economy. I'm no savant though, so my contribution on this issue is right amateurish. However, my take on this is that administrative reorganization, and Paulson's idea that we need no new financial regulation, is wildly ideological and way, way off-base. This subprime lending crisis, and the resulting foreclosure boom, tends to show that a lot of everyday, well-meaning folks were caught up in highly-leveraged attempts to either 1) make a quick buck or 2) jumpstart their version of the American dream with homeownership. Either way, people weren't aware of the financial risks they faced.

It's happened before, and we've fixed similar problems. The Securities Acts of 1933 and 1934 were aimed at addressing highly speculative investing fueled by predatory stock peddlers. The solution wasn't what most of us think of unduly restrictive regulation; the Acts weren't aimed at stifling the markets or restricting the sale of securities. Instead, the Acts focused on disclosure of the risks of buying securities. The goal was to let people know what they were getting into (even though if you read those materials today they can be as confusing to the untrained eye as any other fine print). The point is, what is necessary now isn't a bailout, a reorganization, or any paternalistic restriction on lending. We need disclosure. We need to know who the honest lenders are and how to recognize the dishonest lenders.

But, we're not going to get it soon. The Bush Administration, predictably, is going to punt on this one.


Dews said...

yea, anytime someone brings up the spectre of government "involvement" with business you have all of corporate america (and their cronies) start spewing the evils of "Regulation" regardless of whether there are any enforcible restrictions being set.

Why is it ok for the government to bail out industry, but not set any rules or expectations for them?

I'd kinda like that one answered from someone...

Dewey, Cheatem, & Howe said...

It's a weird approach. Businesses are allowed to thrive on nonregulation, but not allowed to die because of nonintervention.

We all know the real answer. It's the same reason that Delta will get a helping hand, but Aloha Airlines won't. Delta has a guy who knows a guy, who knows a guy with a big wallet, who knows a Senator. It's crap.

Jack Gonzo, MD said...

Dews you forget that these are the same people who say the surge is working when there is less violence...and when there is increased violence.

Dews said...

Its all about spin though with the surge. We're all over here so we can't see the effect its happening thus the way its spun to us via the entertainment industry (formerly known as "Media") is our only window to it.

With the Economy though, the bastards can't hide. We see the effects its causing all around us and demand answers fast!

Chickens are coming home to roost! And its about freakin time.