Getridofthemnow

Don't Panic

For the record, there are news reports (one in today's WSJ) where other countries are saying things like, "This just shows that capitalism is a dead-end, flawed road" and "We need more government control and regulation."

For the record (for those that haven't been paying attention for the last 60+ years:

America is NOT a free market.

We are a highly regulated, manipulated, socialized market.

If anyone suggests that we have a free-market system, please send me a note so I can pass along some reading recommendations.

There are numerous flaws with our current system, not the least of which is manipulation of incentives by more than a few government agencies. Reform is needed, but oddly enough the reform is to get government further REMOVED from tinkering with incentives and creating poor signals of proper/improper investment choice, and work to increase market transparency (we live in an information age, so this shouldn't be so hard).

Problems today include:

1) GSE models (government's fault; flawed; read former Governor Poole's comments on the GSE problem)
2) Allowing TBTF firms - read Alan Greenspan's confirmation hearing and try to internalize all that William Proxmire had to say to the "Maestro". If only we had listened to poor, ignored William.
3) FHLB System - a disaster waiting to happen
4) US Government gtys - like FHA - are you serious? Shoot it
5) Cash basis accounting, not GAAP
6) Of course, the FRB's "fine tuning" operations. Read Friedman. Not that I am a monetarist, but I agree with the "remove the punch bowl" philosophy, which isn't today's FRB (bring back Volker!!!)
7) FDIC insurance - should be paid for as a direct adjustment to amount the CUSTOMER decides they want to insure. Adjustment to rate. No insurance = higher rate; more insurance = lower rate. Make the customer responsible for his/her risk taking
8) Bank ratings - CAMELS? How about rating risk management, disclosure, concentrations, etc. Make them public. Assess higher fees for higher risk.
9) Regulatory arbitrage - not the rules, but the Agencies. Under GLBA, functional regulators created. Congress screwed up. Don't allow "Divide and conquer." Bring the regulators under one roof. Keep the state charters. Push insurance to the FRB. Keep supervision separate from the FRB. Similar to Paulson's plan. Reform needed, but perhaps more regulation isn't, just recalibration.
10) Etc...I could go on and on, but you would get bored, and it's 1:30am.