New Regulatory Changes? Now?

As I was reading the Wall Street Journal on Saturday morning, I saw the headline, “Bush Administration Rushes Regulatory Changes Before Time Is Up.”

My heartbeat accelerated. I started reading the first paragraph: "The Bush administration is hurrying to push through regulatory changes in politically sensitive areas such as endangered-species protection…WHAT!...health-care policy…Huh?...and other areas."

The article stated that this is the rush to “cement new regulations” by pushing through “last-minute changes” intended to cement the legacy of the out-going President. These regulations are consistent with the philosophy of the current administration and are aimed toward stamping the imprint of the administration on Washington, D. C. before its turns out the lights on January 19, 2009.

Whoa! I thought we had a financial crisis that was brought on by insufficient regulation - a crisis that is now spreading deeper and deeper into the bowels of Main Street, and the world. What about the progress of the bailout of all the financial institutions of the country; the rescue of homeowners that are facing foreclosure; the plans being announced daily to lay off thousands of more workers and the deepening recession? What about the financial world that is going to exist after the collapse of 2008? What about the institutions and regulation that are going to define the “game” and its players in the future?

The problem is that when it comes to dealing with the financial crisis, this administration - the gang that couldn’t shoot straight - doesn’t have a consistent vision or philosophy to deal with the economic and financial situation. We saw this in the “breakdown” of former Fed Chairman Alan Greenspan in his appearance before Congress this past week. Greenspan commented that he was in “a state of shocked disbelief.” Helicopter Ben, the current Fed Chairman, is tossing billions and billions of dollars out into the world! Treasury Secretary Paulson is running around trying this plan, and then changing the plan, and then changing the plan again, and then changing the plan again…

The problem is there is no one in charge, and no one has any idea what to do.

Need I say it again, the ‘decider’ has decided to take it on the lam - the leader of the free world is nowhere to be seen.

Perhaps we should take some sage advice from Anna Schwartz who was the co-author with Nobel prize-winner Milton Friedman of A Monetary History of the United States. An interview with Ms. Schwartz appeared in the most recent issue of Barron’s, “Tearing Into the Fed and Treasury Plans” (October 27, 2008). I don’t agree with all Ms. Schwartz has to say, but here is some wisdom I think is very important for all of us to consider.

The way you clear up problems in the credit market is through coming up with a clear, understandable plan and then executing it precisely.

My hope is that they will solve the problem by doing a bang-up job. However, there’s already been talk about having to come back for more money. The risk of being unclear and doing things ad hoc is that you gradually destroy faith in the financial system.

If we keep making things more uncertain, and feeding the fear without minimizing the problems, we could eventually make it so that Americans lose faith in their financial system.

I just don’t see where the “clear, reasonable plan” is going to come from. At the present time, I also don’t see where the people are that are going to “execute the plan precisely.” Moreover, with the economy falling deeper and deeper into a recession, a leader has not yet arisen that is providing us with the “philosophy and vision” we need to guide us through the recovery.

The scary thing coming out of the interview with Ms. Schwartz is the concern about a “loss of faith” and the “feeding of fear.” Where is the leader we need?

Comments

[Chubbs:]

You know where he is, in the corner sucking his thumb.

2008 Oct 26 10:30 AM

[moonbat1775:]

"Where is the leader we need?"

Are you blind? Ron Paul has a clear, consistent, and CORRECT vision for the economy. People will regret that he was marginalized by the "lamestream" media and his own party. Hopefully, four years of suffering will change people's mind.

The problem is quite simple: People have tried to build a free market system on top of a dishonest banking system. It has collapsed as it always does.

We have had three central banks in the US. The first two were destroyed because their evil nature was recognized. Hopefully, the Fed will follow them OR the End must not be far off.

2008 Oct 26 11:13 AM

[anarchist:]

The Bush administration is dong what they always do, screw the public when it's looking the other way. The administration loves to go public with it's programs with oxymoronic names like "patriot act", "no child left behind",etc. (I forget the one for the forest-no tree left behind?) on the weekends when joe sixpac and joe the plumber busy watching sports or busy with the family. So now the public is busy with a financial crises and the administration is "hurrying to push through regulatory changes in politically sensitive areas such as endangered-species protection, health-care policy and other areas." These people are tenacious if not competent.

2008 Oct 26 11:40 AM

[Obama is Bu...:]

What makes you think this financial crisis was brought about by "insufficient regulation"? Its one thing when late night comedians render silly opinions like that, but if you are going to be an author on Seeking Alpha, you really need to be a lot more informed.

Without doing any research into regulatory structure: at the Federal level, we have a Federal Reserve, the Office of the Comptroller of the Currency, the FDIC, the Treasury Department, the Securities and Exchange Commission, Housing and Urban Development (which regulates numerous mortgage programs), the FDIC, and lets not forget about both houses of Congress having a financial services committee that is supposed to watch broad industry trends and supervise the regulatory agencies above. On top of all that, we have the FBI and Department of Justice that are supposed to investigate financial fraud.

All the states have banking commissions, and many have securities regulators. All of them have attorney generals who supposedly investigate financial fraud.

How can you possibly claim this is "insufficient regulation"??? Did you even think about what you were writing before you wrote it???

I think you meant to say we have ***ineffective regulation*** .... because there is no way a halfway intelligent person could argue we don't have enough regulation.

Congress, just for example, actively intervened at every federal regulatory agency and insisted that Fannie Mae and Freddie Mac expand lending programs to poor borrowers -- neglecting to examine if poor borrowers were credit worthy and underserved (which would argue for FNM/FRE involvement) or if poor borrowers were simply unable to afford a home (which would be a perfectly legitimate reason why they wouldnt get a mortgage). Congress didnt ask and didn't care -- they wanted lending whether it made financial sense or not.

They even went so far as to appoint Franklin Raines, a politician with no banking background, as CEO of Fannie Mae... That appointment was done by Bill Clinton-- Bush has made more than enough bad decisions on his own without being blamed for the bad decisions of others.

We have plenty of regulations in this country -- but they are too often subverted by the regulators themselves.

2008 Oct 26 01:34 PM

[dw57:]

i think there point is not so much that there wasn't regulators. but they were asleep at the wheel. and i see the blame some one else game is also being played. Fannie and Freddie don't make loans. they but them from those who do. They only got involved because the mortgage companies were making bad loans. To people they knew were not going to be able to pay it back. I wonder if those who say thing like this aren't just trying deflect their own actions.

2008 Oct 26 01:57 PM

[moonbat1775:]

Gee, has it ever occurred to anyone that a system that needs so much regulation might be UNSTABLE? Fractional reserve banking is INHERENTLY insolvent. What do you think bank runs are but multiple claims chasing the same underlying reserves? How does one 'unwind' a bank run? Alphabetical order?

2008 Oct 26 03:08 PM

[Jimmy Lathrop:]

All that needs to be done arethree things.

The first thing is to set up a clearinghouse for CDS so we can have a better handle on the net volume and size of positions.

Two, ban European-style forward contracts or any hybrids that fall outside of the CDS ISDA framework - no side bets.

Three, change capital requirements that allow CDS to take the place of deposits.

Its a tough swim for anyone brave enough to withstand the currents of the flood of cash from institutions to lobbyists to prevent those three things from taking place.

2008 Oct 26 08:30 PM

[Steven Hansen:]

i go with the opinion of gramps2.

as far as having a 'leader' to get us out of this crisis, first somebody must define the problem. there is so much opacity, that you continually get blind sided buy pieces of the puzzle you thought you understood but really did not. the leader must be all knowing. oh, i get it - its the same guy they taught us about at sunday school.

america has always been lucky ..... it is a shame we continually have to rely on luck.

2008 Oct 26 09:03 PM

[Moon Kil Woong:]

Sure the crisis is defined. $600 trillion derivatives, around $55 Trillion in CDS contracts based on rising defaults. That makes CDS account for about 60% of the total US wealth and derivatives account for about 8.5x total US wealth that is shrinking.

The reason you don't hear a lot of other derivatives complaints is because they require collateral and are regulated. So yes, this writer talking about no regulation is correct even if he doesn't finger it exactly. Not, poor execution but no regulation. CDS writers plus the destruction of the barriers separating banks, insurance, and brokerages spawned a terrible monster. CDS writers were smart enough to make sure their contracts avoided all regulation.

The one person who could have caught them was the SEC who could have said even though CDS is not my purview your balance sheet disclosure is and corporations should disclose their CDS risk and collateral. When they revealed the CDS Risk = monumentous and collateral = 0%; that should have started bells ringing about 5 years ago.

2008 Oct 26 10:54 PM