Overhauling The Country's Financial Regulatory System - Another Failed Political Class Reform Effort

We have briefly commented in a recent post of how the recently passed Federal law that supposedly overhauled the nation's financial regulatory system was another failed effort of the political class. We cited two major, major shortcomings of the legislation. First, the bill does not address the two major failed Federal housing and mortgage agencies that were at the center of the housing and banking collapse, Freddie Mac and Fannie Mae. Some experts estimate that these two agencies could cost the American taxpayer upwards of a TRILLION dollars in bailouts over the next ten years, certainly a major financial regulatory problem that this bill does not even address.

Second, the law does not do anything to regulate the consumer leasing area that concerns automobile leasing. Since both of these areas have a major impact on the majority of Americans' lives, mortgages and car loans, not including these aspects of the financial industry in the legislation dooms from being effective from the beginning.

But enough of my opinion, what do others across the nation think about the bill. An article in the July 30, 2010 issue of The Week magazine did just that, gathering opinions from experts across the country:

• The Detroit News called the bill a "shell bill," implying it had very little substance and left the details up to government bureaucrats. The paper felt that the red tape that will be imposed on smaller financial institutions will force them to go out of business or merge with existing, larger financial institutions. Thus, the bill will do just the opposite of what it was supposed to do, i.e. the "too-big-to-fail" financial institutions will become even larger.
• The Wall Street Journal said the red tape will be endless and there is no limit on how far the bureaucrats rule making will go.
• The San Jose Mercury News felt that the bill was a good start but it's success will require regulators who are "savvy enough to use the bill's powers to head off an unanticipated threat to the economy." Given that these same regulators did not see the biggest economic shock coming since the Great Depression until it happened and that a large number of SEC employees were found to be using work time and government computers to do massive Internet searches for pornography during this time frame, this is not a reassuring conclusion.
• Terry Savage writing in the Chicago Sun Times reached a similar conclusion: "The SEC was created to protect investors from scam artists like, say, Bernie Madoff. Oops. The FDIC was created to stop banks from feeding a speculative mortgage frenzy. Never mind. If all those agencies and regulations could not keep this massive bubble from building then bursting, will the new regulations do it?"
• Ezra Klein did see some good in the bill, writing for the Washington Post, but felt that this reform bill really doe not fix "the weaknesses and imbalances that led so many consumers to borrow beyond their means. The bill is medicine, it doesn't dramatically change the conditions that made you sick in the first place."
• The Philadelphia Inquirer was the only source that showed unbridled support for the legislation, seeing that it created a much needed "framework for tougher monitoring and regulation of a system that spun out of control" and that regulators now have the power "to dismantle failing institutions before the harm spreads through the financial system."

Apparently, the Inquirer still has this quaint notion that the political class can administer the government and the regulations that it operates. This was a faulty assumption in the past where regulators were caught totally unaware of the coming economic collapse and the scams of Madoff and others. What makes the Inquirer think that the SEC personnel will get off the porn sites long enough to use this new legislation to cure the problems before they start, problems that may infect the now much larger financial institutions that are too-big-to-fail that requires a government bailout and we end up right where we started?

Remember, the bill was spearheaded by Senator Chris Dodd and Barney Frank, the very people who headed up the key Senate and House of Representatives finance and banking committees responsible for making sure that things like the economic collapse did not happen in the first place. This is like taking the captain and helmsman off of the Titanic and putting them in charge of the next cruise that goes along the same route. They screwed up the first time, do we really think they understand how to fix the problem they never saw coming until it overwhelmed them back in 2008? If the principles from "Love My country, Loathe My Government" were in place, Step 34 would have removed both Dodd and Frank and their other committee peers from their post and replaced them with others, hopefully people who actually understood the financial market.

So let's review. The new law relies on the same regulators to write and enforce the bill's rules but these are the same people that missed the economic collapse the last time around. The new law's red tape requirements will overwhelm smaller financial companies, resulting in the big financial institutions getting even bigger and more dangerous to the health of the economy if one of them should fail. The people that actually wrote this bill proved they did not understand the financial markets prior to the Great Recession became a reality, why would we think they got so smart all of as sudden?

This is why the November elections and Step 39, term limits, are so important. We need to get smarter people involved in solving this problem. People who actually understand the root causes of our financial malaise and are able and courageous enough to make the hard decisions, both in writing a good law and making sure that the Federal bureaucracy actually fairly enforces the good law. Keeping the current buffoons in office results in "shell bills" that do not solve anything and may actually make the situation worse, e.g. the big get bigger and the red tape wastes time and resources of American businesses.

Remember, the Sarbanne-Oxley bill did the same thing. It required an outrageous amount of data to be created by American businesses that was never examined by the regulators and failed to identify companies with faulty financials leading up to the lastest economic recession, including the ones that failed quickly or needed to be bailed out in 2008 (AIG, Bear Sterns, Lehman Brothers, etc.). While "Love My Country, Loathe My Government" calls for the repeal of this useless bill (Step 48), if the book was being written today it will also call for the repeal of this financial industry reform bill. It will not work and it will just waste American business resources.

Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Also visit the following sites for freedom:

http://www.cato.org/
http://www.reason.com/
http://www.robertringer.com/
http://www.realpolichick.blogspot.com/
http://www.flipcongress2010.com/