Shakespeare would likely describe the latest major legislation winding its way through Congress as a piece of legislation crafted by idiots, full of sound and fury, signifying nothing. Rather than address the systemic distortions created by prior government policies, and which caused the financial meltdown, policy makers are now “[putting] a lot of faith in the watchful eye of regulators to prevent another financial crisis,” according to the Washington Post.
Nearly two years after tremors on Wall Street set off a historic economic downturn, congressional leaders greenlighted a bill early Friday that would leave the financial industry largely intact but facing a more powerful network of regulators who could impose limits on risky activities.
The final bill took shape after a 20-hour marathon negotiation between House and Senate leaders seeking to reconcile their separate versions. The legislation puts a lot of faith in the watchful eye of regulators to prevent another financial crisis. New agencies would police consumer lending, the invention of financial products and the trading of exotic securities known as derivatives. Bank supervisors would have the power to seize large, troubled financial firms whose collapse could threaten the entire system. The bill calls for banks to hold more money in reserve to weather economic storms but leaves the details to regulators.
…”We are poised to pass the toughest financial reform since the ones we created in the aftermath of the Great Depression,” Obama said at the White House, adding that the bill “represents 90 percent of what I proposed when I took up this fight . . . We’ve all seen what happens when there is inadequate oversight and insufficient transparency on Wall Street.”
Essentially, Congress has decided that all we need is yet more overpaid bureaucrats. No reform of Fannie and Freddie. No efforts to stop politicians from continuing to force banks to issue risky loans so that they can point to expanding home-ownership under their watch. Instead, we get harmful price controls on debit cards, which has nothing to do with the cause of the 2008 recession.
Even the crafters of the bill aren’t really buying their own stance that more government will help. In one of those rare moments where a politician accidentally let’s the truth slip out, Senator Dodd admitted, “No one will know until this is actually in place how it works.” Belief in big government really is all about faith.
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Obama steps up campaign for financial overhaul, putting pressure on GOP:
Just before a meeting with Democrats and Republicans to discuss the legislation, President Barack Obama said it needs to be passed in order to prevent another financial “meltdown.”
He warned that not passing the bill could put the economy in peril.
“All of us recognize that we cannot have a circumstance in which a meltdown in the financial sector once again puts the entire economy in peril,” Obama said. “And that if there’s one lesson that we’ve learned it’s that an unfettered market where people are taking huge risks and expecting taxpayers to bail them out when things to sour is simply not acceptable.’’
First of all, Obama contradicted himself. A “market where people are taking huge risks and expecting taxpayers to bail them out when things turn sour” is not unfettered. Nevermind that the one we have is obviously not unfettered, but even his simplistic description of it makes that a logical impossibility. Implied and explicit guarantees by government are a market distortion. Government interference already exists under such circumstances.
If we remove the President’s gratuitous use of “unfettered” here, then he’s actually saying something semi-intelligent. We clearly do not want a system where government is encouraging people to take greater risk than they otherwise would by guaranteeing their loses with taxpayer dollars. But that’s exactly what government did, and is one of the primary causes of the financial crisis. The correct response to this situation is not to say that “we need to stop people from taking risks!” The correct response is to end all government bailouts and make clear that there is no such guarantee.
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It’s not doing what they claimed it would do:
The 700-billion-dollar US government effort to rescue the financial system has failed to meet key goals such as sparking lending and curbing risky activities by banks, a special auditor said Sunday.
The special inspector general for the Troubled Asset Relief Program said in a report to Congress that it is too soon to measure the overall success of the program passed at the height of the financial crisis in October 2008.
The quarterly report said that because of TARP, “there are clear signs that aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008.”
Talk about a low bar. Doing nothing would have accomplished that, and at 100% less the cost!
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The outrageous story of the week is Obama’s decision to try and sneak this by during Christmas:
The Obama administration pledged Thursday to provide unlimited financial assistance to mortgage giants Fannie Mae and Freddie Mac, an eleventh-hour move that allows the government to exceed the current $400 billion cap on emergency aid without seeking permission from a bailout-weary Congress.
The Christmas Eve announcement by the Treasury Department means that it can continue to run the companies, which were seized last year, as arms of the government for the rest of President Obama’s current term.
Merry Christmas, and have a Happy New Year of watching government continue to do all the same idiotic meddling that destroyed our housing and financial markets.
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This won’t be the first time the subject has been discussed on this blog, but the determination of many to paint last year’s financial implosion as a failure of capitalism requires diligence and constant restatement of the truth. The truth is exactly what Steven Horwitz and Peter Boettke bring in their new report, “The House that Uncle Same Built: The Untold Story of the Great Recession of 2008,” published by the Foundation for Economic Education.
From the introduction:
The theme of “The House that Uncle Sam Built: The Untold Story of the Great Recession of 2008” is that government policy, not a failure of free markets, caused the economic trauma we have been experiencing. We do not live in a free market. We live in a mixed economy. The mixture varies by industry. Technology is primarily free. Financial Services is primarily government. It is not surprising that the most government regulated and controlled segment of the economy, financial services, experienced the biggest problems. These problems were created by actions by the Federal Reserve combined with government housing policy (especially the government-sponsored enterprises – Freddie Mac and Fannie Mae). Misguided government interference in the market is the real culprit in laying the foundation for the Great Recession.
The entire essay is available as a pdf here.
Hat-tip: The Locker Room
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Government interventionist used the pretense that some organizations are “too big to fail” to justify unpopular corporate giveaways euphemistically referred to as “bailouts.” Now they’re taking this same false premise and using it to lay the groundwork for socialism.
The New York Times manages to reach a new low by trying to paint this unprecedented government takeover of industry as the moderate choice. The article cites no one who questions the premise and interventionist assumptions, and instead finds only critics who say this isn’t enough. They are the new fifth column.
Congress and the Obama administration are about to take up one of the most fundamental issues stemming from the near collapse of the financial system last year — how to deal with institutions that are so big that the government has no choice but to rescue them when they get in trouble.
A senior administration official said on Sunday that after extensive consultations with Treasury Department officials, Representative Barney Frank, the chairman of the House Financial Services Committee, would introduce legislation as early as this week. The measure would make it easier for the government to seize control of troubled financial institutions, throw out management, wipe out the shareholders and change the terms of existing loans held by the institution.
What is the plan for when government is too big to succeed? We need to make it easier for the people to seize control of troubled governmental institutions, throw out elected officials, wipe out the bloated bureaucracy and change the terms of existing laws designed to benefit the few at the expense of the many.
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Just so that we remember the central planning began under Bush.
Former Treasury Secretary Henry Paulson says he was justified last year in suggesting that Bank of America Corp.’s chief executive could lose his job if the bank backed out on plans to buy troubled Merrill Lynch.
…In prepared testimony, Paulson said he told Bank of America CEO Kenneth Lewis last year that reneging on his promise to purchase Merrill would show a “colossal lack of judgment.”
Paulson said that “under such circumstances,” the Federal Reserve would be justified in removing management at the bank.
Rep. Issa nails it:
CommentsRep. Darrell Issa, the top Republican on the House Oversight and Government Reform Committee, said Paulson’s testimony makes clear that the government became too involved and misused its power.
“It is a threat to the foundations of our free society when government officials, acting in the midst of a crisis, use dire predictions of imminent disaster to justify their encroachment on our individual liberty and the rule of law,” said Issa.
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First, the government forced banks, at figurative gun point, into accepting TARP funds. Now the government says they can’t just pay the money back and be free of heavy-handed government meddling.
Strong banks will be allowed to repay federal bailout funds, but only if such a move passes a test to determine whether it is in the national economic interest, the Financial Times reported on Sunday, citing a senior U.S. administration official.
The report said banks that had plenty of capital and demonstrated an ability to raise fresh capital from the market should, in principle, be able to repay government funds.
But the judgment would be made in the context of the wider economic interest, the report said.
I can think of few things scarier than government bureaucrats purporting to determine what’s in the national economic interest.
American businesses take heed: don’t get in bed with government.
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The attacks on capitalism being led by the likes of Barack Obama and Mario Cuomo have consequences.
The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.
DEAR Mr. Liddy,
It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:
I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.
After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.
I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.
…
Read the entire letter.
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Never let a good crisis go to waste. King Obama wants to give Prince Geithner authority to seize non-bank financial companies. Once the government has control of the nation’s entire financial apparatus, Obama’s socialist transformation may be unstoppable.
The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.
The government at present has the authority to seize only banks.
Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president’s Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.
The administration plans to send legislation to Capitol Hill this week. Sources cautioned that the details, including the Treasury’s role, are still in flux.
Let me be perfectly clear about this bill: it must be stopped at all costs. If such a bill passes, it will mean the end of capitalist(-ish) America.
Obama’s socialist ties were exposed during the campaign, but we were told we just couldn’t call him that. How dare we call him a socialist; why, that’s hyperbole! But now we have all the proof we need.
He wants the government to run the entire economy. That is socialism, and those who seek to advance it must fail. It is the obligation of those who believe in freedom to ensure that they do.
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I am a libertarian-conservative blogger living in the DC area. I have a Master's degree in Political Science and work in public policy, but please don't hold that against me.
