An Obama administration proposal to create a government watchdog for financial consumers inched forward in Congress Wednesday, with House Financial Services Chairman Barney Frank calling for "death panels" to close down troubled financial firms.
Treasury Secretary Timothy Geithner, at a hearing chaired by Frank, urged lawmakers to approve the proposed Consumer Financial Protection Agency.
This, I believe, is a microcosm of both the administration's and it's allies' fundamental misreading of both the politics and policy of the entire domestic agenda. The Democrats believe that there wasn't enough government control of business and so they want to create more government control. On a policy level that's totally wrong. Furthermore, the public isn't comfortable with the government controlling business even more than it already is.
The problem wasn't that there wasn't enough control. That's the fallacious argument that there was too much deregulation. The problem was that the control was ineffective. Look at the Bernie Madoff case as an example. Was the problem a lack of regulations, or was the problem a total breakdown in enforcing the regulations we had? Of course, it's the second. Ponzi schemes aren't legal. So, we need no new regulations or regulatory bodies to fix the problem. The SEC was totally asleep at the wheel. They failed to regulate basic regulations even though eventually there was overwhelming evidence of a problem. So, would President Obama want to create another regulator as a result of the Bernie Madoff fiasco?
AIG is another great example. AIG acted as both an agent and as the exchange in credit default swaps. It's sort of like the Chicago Board of Options Exchange itself selling you an AT&T option. That's not how it works, and that's because that would be a clear conflict of interest. Yet, AIG effectively made the exchange for credit default swaps and was the main market maker for most of the specific credit default swaps. So, where were the regulators to put an end to it? Yet, President Obama's answer is to create another regulator.
The main problem with most of the problem mortgages was fraud. People lied about income, assets, and even occupancy. They did this systematically. None of this was at all legal. In fact, laws specifically forbade such an action. Where were the regulators to put an end to the mass fraud? They were asleep at the wheel.
What's President Obama's answer to the problem? He wants to create a Consumer Financial Protection Agency to regulate financial products. Never mind that we already have an alphabet soup of regulators for financial products. He wants to create yet another one. We had incompetent regulators and his answer is another regulator. Instead of fixing the incompetence, he creates another one. There's no evidence that the new one will be anything but incompetent.
As for Frank, he wants to create a regulator to shut down failing too big to fail financial institutions. The problem of course wasn't that too big to fail institutions failed. The problem was that they were too big to fail in the first place. This happened because of an explosion of mergers and acquisitions that created financial superstores that we now know were too big. Yet, all mergers and acquisitions must be approved by regulators in part to make sure the new company isn't too big to fail. Where were all these regulators? They were asleep as well. The answer according to Barney Frank is to create yet another regulator.
That's the reason that the public is rejecting much of these proposals. They inherently understand that more government isn't the answer. They also inherently understand that creating another regulator isn't the answer. They are looking for a government that functions better not a bigger government.