Monday, September 14, 2009

Obama's financial regulatory reform won't work

President Obama gave a speech to Wall Street today. He claimed there's a new sheriff in town.

I doubt it, unless he meant to say "don't worry, GWB was easy on you... but we'll be even easier!" Don't forget that Obama not only promoted TurboTax Tim, but he also reappointed the-man-who-created-the-24/7-printing-press, Ben Bernanke.

Anyway, I think this article from Bloomberg News (by Alison Fitzgerald and Christine Harper) captures the essence of the President's nonsense regulatory "reform:"

the Obama plan would label Bank of America, New York-based Citigroup and others as “systemically important.” It would subject them to capital and liquidity requirements and stricter oversight, relying on the same regulators who didn’t understand the consequences of a Lehman failure. And while companies could be dismantled if they got into trouble, they, their creditors and shareholders could also be bailed out with taxpayer money, according to the plan.

The article continues:

As much as it might mitigate some risks, the Obama strategy is fatally flawed because it fails to force the largest banks to change their behavior, said Johnson, the former IMF economist who is now a professor for finance at the Massachusetts Institute of Technology in Cambridge.

“The biggest problem is it doesn’t deal with too-big-to- fail,” Johnson said. “It doesn’t say anything.”

If constraints aren’t legislated, “complexity will multiply and take on new forms,” and regulators once again won’t be able to keep up, he said. “You have to make things a lot smaller.”

I couldn't have said it better myself. I used to deal with MBS' and CDS'. No matter how hard the regulators try, the traders & product-creators will always be at least one step ahead of the regulators. And over time, budgets will be cut as people push the storyline "That was then, this is now. It's different now." Glass-Steagel and deva vu, all over again!

The article is pretty lengthy, but if you have the time I highly recommend it.

For decades now, Presidents (R & D) have enabled the creation of this mess. But Obama is not fixing it, he's just reinflating the bubble and setting the stage for an even bigger mess. There is a way to fix it though. The President should address the nation and begin a discussion on:

1) fractional reserve banking vs. full reserve banking
fiat money vs. honest money
the existence of the Federal Reserve

Almost everyone in Washington (pols and MSM alike) seem to simply accept the existence of the Federal Reserve and the policy of central planning central banking as moral and just. But if you'd like to hear an alternate view, you can learn more about Congressman Ron Paul's argument against the existence of a central bank in his book, End the Fed. It's officially being released this week. I'm sure it'll instantly hit the best-seller list.

Tim White


Anonymous said...

There you have it, "be bailed out with taxpayer money". The banks mess up and they get our money, not go broke.

Toronto real estate said...

your note of central planning got me worried. It seems to be true. Are we really going there? Hope not, hope there are still people who are sane.