The rhetoric is picking up regarding the Financial Regulation reform bill that is currently being promoted in Congress. I have the feeling that the cow is already out of the barn and that the gang that can’t shoot straight is on another’s fool’s errand or using the financial crisis as an excuse to expand again the powers of Washington. I have no connection to the big banks or investment bankers and no particular love for them. But I appreciate logis anytime it can be found and honesty over political hypocrisy. I must confess that I find it both disheartening and confusing that the administration would trot out Treasury Sec. Geithner for the talk show the last few days as a cheerleader on the issue.
He knows too much or knows too little. Firstly, it is disconcerting to be lectured about prudent business and accounting matters by someone who made a $40,000.00 “mistake” on his personal income tax. If he can’t understand his own tax return why should we have any confidence that he understands the market operations of CDS’s, CBO’s or any other complicated instrument sold on Wall Street? That is both a serious question and tongue in cheek–take your pick or choose both. He was there at the New York Fed when all the problems arose and was up to his neck in the decisions to bailout the major banks. They did NOT have to be bailed out. That was a decision made by Government, Inc. The powers that be decided it was an emergency and they decided that had to be bailed out. How the heck do we know if they were right?
It is not as though we don’t have enough regulations and regulators already. For the banks we have the FDIC, the Comptroller of the Currency, the Fed, the Treasury, OTS. Plus many of the banks are also subject to supervision by State regulators and all States have supervision of public companies and the securities offered to their residents. Cuomo has been in the news often as was Spitzer before him in these matters. In addition to that we have the reporting and disclosure requirements of Sarbanes/Oxley and the SEC supervision. Lying and not making a required material disclosure regarding actions of public companies and the issuance of securities to the public are fraudulent and have been for decades. Remedies and punishment for abusers of the financial and market system have been available for many, many years. Do we really need something new and even more cumbersome?
This new proposal will create that special agency to determine when a concern or bank is a systemic risk and will have the power to shut it down, sometimes after court approval but not always. Is this new bunch of whiz-bang kids fresh out of graduate school and law school going to magically make us all safe from the vagaries of the market? Will there just be new turf wars that are notorious in bureaucracies between this group and all the others that will still be in place? Supposedly, the bill provides that a special fund of 50 billion will be created from new taxes placed on the big banks to fund the wind down of any future failure. Well, there goes another 50 billion out of the private market place that who knows might have been loaned to create a new company and create new jobs. But I don’t think the current gang in control in Washington really cares about new jobs unless they are government-dependent jobs. Secondly, you know human nature. That special fund will be sitting there like a new toy for those bureaucrats just waiting to try it out. Doctors like to try their new remedies, lawyers like to try new legal theories, scientists like to try the latest technological advance. That is things work, you have a “tool’ in place for technocrats to use and you can be assured it will be used. They want to show off how well they can give it a spin around the block.
We are told that the fund will only be used to “wind down” the villain in the piece. But check the latitude they have in the wind down. The language also provides that in an “emergency” that additional sums can be taken from the Treasury to avoid a systemic risk to the financial system. But who is making this determination that there is an emergency? No one you and me have any control over. One man’s emergency might be another man’s passing problem and even no problem at all. Furthermore, there is no time limit on anything. Once a company goes into this process what if the bureaucrats let it take 20 years to be resolved. Don’t laugh. Many complicated Chapter 11’s last for 5 years. FERC was supposedly a temporary bureaucracy to deal with the emergency of the oil embargoes of the Carter ’70’s and we still live with it today. How many years will Government Motors and Chrysler be under the thumb of government control?
All we need for new regulation is a simple statute that says if a company becomes insolvent that no government funds from any source, direct or indirect, will be used to buy equity in the company or make any loans to it. We can let the existing agencies go through the liquidation process by Chapter 11 or the bank regulators or insurance regulators. Just say too big to fail is not the law of the land and that any company that fails will be dealt with under existing laws–period. It was the actions of government that created that fallacious notion in the first place. Restrict that notion and all is well.
Many traveled throughout most of the known world using “dead reckoning” for navigation. That is merely making an educated guess about speed,direction and distance from a last known position. They used various methods for calculating speed. Often it was simply watching a floating device as it receded behind the ship. The stars and Sun were the only steady beacon most of the time. They did pretty well with our GPS when you think about it. www.olcranky.wordpress.com