Watchman Newsletter

Wall St. Pushes Back

Investor's Business Daily (Link) (June 18, 2009)

Reform: A White House plan to re-regulate the U.S. financial industry on "a scale not seen since the reforms that followed the Great Depression" would be a disaster. Just ask the target of the new regime: Wall Street.

The White House characterization of the bill is accurate: It is the biggest change in financial regulation since the time of FDR. But that's not necessarily a good thing.

Since much of what FDR begat — Fannie Mae, the Glass-Steagall Act, the Securities and Exchange Commission and an empowered Federal Reserve, among others — is still around today. And all of these Depression-era creations have been implicated, one way or another, in our current crisis.

Yet, Democrats in Congress vow to push through a massive new regulatory scheme as fast they can. Just one day after the plan's unveiling, and showing their impatience, they dragged Treasury Secretary Tim Geithner to the Hill for quick hearings.

Clearly, a fast vote is desired, and anyone who votes against it will no doubt be portrayed as an anti-regulatory nut willing to sacrifice the U.S. economy for free-market extremism. The mainstream media, with their schoolgirl fixation on the current occupant of the White House, will pliantly parrot the slanders.

Fortunately, the financial industry isn't lying down this time. Many on Wall Street have been stunned by a plan that subjects America's free-market capitalism to the controlling whims of bureaucrats, newly appointed czars and congressional committees headed by anti-business liberals such as Rep. Barney Frank.

"We intend to take our case to Congress to explain why we believe adding new layers to a broken regulatory system is not the answer," David Hirschmann, who heads the U.S. Chamber of Commerce's Center for Capital Markets, told the Los Angeles Times.

Indeed, there are lots of objectionable things in the plan.

Making the Fed a "superregulator" of the financial system strikes us as a poor idea, given that its performance over the last decade — two recessions, two market collapses and the bankruptcy of many major banks that it already regulates — has hardly been inspiring.

Nor are we happy with the new Consumer Financial Protection Agency to oversee consumer credit. It will soon become a kind of nanny intervener on behalf of consumers, and banks will slowly shut off the credit spigots to those who need credit the most.

Worse, letting the Treasury and Fed decide who's "too big to fail" is the worst of all possible outcomes — the socialization of big firms' losses with bailouts, and the privatization of their profits.

We hope Wall Street — banks, investment houses, hedge funds, private investors — continues to speak up. The Democrats' plan slips the government's fingers around the economy's neck, choking off the risk-taking that is the very essence of America's capitalist success.

Bold risk-takers will be replaced with risk-averse bureaucrats, and the dynamic growth engine that feeds our ever-expanding standard of living will be shut down.

This in turn will create a permanent bailout culture — one that will deem certain companies "too big to fail" and subsidize their failure with taxpayer money, while burdening small, entrepreneurial companies with unnecessary and costly regulatory oversight. †

America ~ Economic Crisis