New Treasury Plan - Short Housing and Insurance

At an admittedly cursory first read, my initial reaction to the Treasury plan to save us all from financial markets is to short housing and insurance. Those are the two main areas that will bear a new and heavier regulatory burden.

Housing is proposed to be subject to a new Mortgage Origination Commission. Because markets are so awful, and companies can't decide whether to enter the mortgage business themselves, we now are apparently going to have the MOC deciding whether states are up to snuff with respect to the certifying companies permitted to enter the mortgage origination business. Gagh! Kill me.

And then there's insurance. There, Paulson proposes new federal regulation of that stodgy business by creating a new national insurance office within Treasury, one that would oversee any insurance firms so dumb as to choose to have a federal charter.

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It's easy to take potshots at the Paulson plan, and I haven't resisted doing that, especially its embrace of new regulations, but is there anything to like about it?

Sure. It's nice to see an attempt to harmonize a system of complex, overlapping regulations that numb the mind, make lawyers rich, and stall innovation and competition. As Paulson concedes, parts of the regulatory superstructure for the U.S. banking system have been around since the 1860s, and modernization is overdue.

Faint praise? Admittedly. But I generally struggle with the justification for most banking regulations. Yes, the taxpayer is on the hook because a) the Fed is the lender of last resort, and b) we have deposit insurance, so we need to have a governmental presence. But that is circular, in that it begs the question of why we have a governmental presence in the first place. What is it that's so darn special about banking that we're willing to bear the price of bank bailouts, regulations, etc., just to make sure we don't have a repeat of bank runs?

It sometimes seems like we regulate banks because this cosseted industry surrounded by governmental safety nets attracts and employs too many nitwits who require us to keep an eye on them.

Comments

[CarlosSlim]

I wish I could have shorted Residential Real Estate around 2006.

The closest thing to Residential Real Estate I can find to short is commercial real estate (SRS PROSHARES TR ULTRA SHORT REAL ESTATE PROSHARES).

It's extremely volatile and doesn't perform well. If the economy is going into recession, strip shopping centers will have fewer tenants, rents will decrease, profits will decrease.

So why hasn't commercial r.e. tanked if we're in a recession that could last 8 months to 8 years (or longer)?

[clitosil]

it will, it just lags residential.

[FuturesLover]

Gee! Just think how rich my Grandma and Grandpa Dietrich would have been today if there was FDIC insurance on their savings accounts!!! They lost $7,200 back in final collapse of the banks in SF during the Great Depression. Do you know what that would have been in 2005 US Dollars?!? Well over $278,000! It just shows that you've never lost money in your bank savings account.

[Joe Doe]

"What is it that's so darn special about banking that we're willing to bear the price of bank bailouts, regulations, etc., just to make sure we don't have a repeat of bank runs?"

This is the only sector that deals in "printed paper" with inherently no value. Image engineering is hard to come by to convince people that the paper has some 'value' sometimes in the future. A slow Ponzi scheme that keeps red tape afloat, so the bankers of tomorrow can pile up the gold and silver while trading their papers.

[johngonole]

Government and business are tied together too much. I wish as a practicing structural engineer I didn't have the stress of trying to make money while at the same time doing the job right. Believe me things would be falling down all the time if we were regulated like the banking system. One could protect themselves by bank failures easily these days by creating a more liquid exchange of gold and silver and having multiple checking accounts with different banks. Instead we work our wholes lives paying for banking failures via inflation.