Meddlers At the Gate

America needs genuine financial reform, not stale populist rhetoric.

No. Legislators never would employ crude and simplistic sloganeering like those rowdy anti-gummint protesters.

Just ask Senate Majority Leader Harry Reid, who this week offered up this eloquent gem: "A party that stands with Wall Street is a party that stands against families and against fairness."

You know Wall Street; it lives to destabilize the family unit. Just scratch the surface and you'll find 8,500 companies trading on the New York Stock Exchange and another 3,200 companies listed on Nasdaq. Nearly 50 percent of households own some form of equities, and 21 million households own individual stocks outside any employer-sponsored plan.

All working together against kids and fairness.

Actually, what Reid's words reveal is an ideological disposition that is wholly unconcerned with creating a healthier Wall Street or a Wall Street scrubbed of crony capitalism and government-produced moral hazard.

Using stale populist rhetoric, Democrats dishonestly pit families against "banks" to generate enough support to pass a fiscal reform bill. But how many voters manipulated by the fear-mongering of Chris Dodd, Reid, or Barack Obama fully understand reform? I sure don't. It's complex stuff, no doubt.

How many of us are aware that these derivatives that politicians rail against are financial tools that often allow people to hedge bets and take insurance on risk? As The New York Times recently reported, entities like Mars, the maker of M&M's, like to dip into the derivative market to insulate themselves from fluctuating prices of sugar and chocolate.

How many voters are aware that the pending Senate reform bill includes a payback to unions in the form of a "proxy access" that would allow labor to manipulate company boards? How many are aware that the bill may give the Treasury Department the right to seize private property and businesses without any significant judicial review?

How many Americans are aware that the reform bill might create a so-called "consumer protection board" that would slather another needless layer of federal red tape on a wide range of businesses—businesses, incidentally, with far less culpability in creating the housing bubble than members of the Senate Banking Committee.

At the same time, the board also may ban private, voluntary arbitration agreements between consumers and financial firms. Why?

How many voters are aware that the Senate reform bill would clamp down on "angel investors"—wealthy individuals who invest in startups with few regulatory guidelines. From Google to Facebook, it was angel investors who undertook the initial risk.

What is appropriate risk? Well, who else but politicians and bureaucrats, both genetically disposed to avoid risk, could be better judges? That is the kind of micromanaging Washington is proposing. Would it not make more sense for government to disentangle itself from the market (and the bailouts), enhance transparency and simply enforce the rules already in place?

Instead, Democrats have boiled down this intricate and wide-ranging legislation into a false choice that pits Wall Street against families. Our attention is to be diverted by a show trial of Goldman Sachs—which, as far as I can tell, is accused of betting against the housing market just as Fannie and Freddie were incentivizing failure—to gin up anger.

No crisis ever is wasted. And for those reflexively averse to risk, profit, and markets, this is an opportunity like no other.

We need financial reform. What we're being offered, it seems, is another piece of command-and-control legislation fast-tracked to avoid the midterm elections—and honest discussion.

David Harsanyi is a columnist at The Denver Post and the author of Nanny State. Visit his website at www.DavidHarsanyi.com.

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  • Jordan||

    Just ask Senate Majority Leader Harry Reid, who this week offered up this eloquent gem: "A party that stands with Wall Street is a party that stands against families and against fairness."

    Welp, that rules out the Demopublicans.

  • Michael Ejercito||

    Why is "thou shalt not steal" insufficient financial regulation?

  • Wegie||

    Yes!

  • CrackertyAssCracker||

    you also need, "thou shalt not bear false witness", to plug up all the loop holes.

  • ||

    Reid looks like he stepped out of the grave to take a piss.

    What he needs is a campaign with a strong opponent, someone that will stress his ticker real good.

  • ||

    Dennis Miller said something to the effect that Reid is such a lightweight he's almost translucent.

  • ||

    SOrry but that dude is just not making any sense whatsoever.

    Lou
    www.real-web-anonymity.at.tc

  • Chris||

    When the anon bot is better at seeing BS than real people, we're in trouble.

  • ed||

    It's such a bizarre coincidence that the Goldman Sachs kangaroo court happened at the very same time as the Senate financial "reform" votes.

  • Kroneborge||

    Not only that, but it happened on option experation day. If you had bought a $1000 put on Goldman the day before, you would have ended up with 1.5 MILLION.

    (note that volume was higher than normal around that period of time, strage...)

    Not bad for a days work.

    Now if only I had some inside connections.

  • creech||

    Anyone, other than Hillary, really do this well?

  • ||

    Kroneborge|4.28.10 @ 1:36PM|#
    "Not only that, but it happened on option experation day. If you had bought a $1000 put on Goldman the day before, you would have ended up with 1.5 MILLION.
    Not bad for a days work.
    Now if only I had some inside connections."

    And do you know that $1.00 spent buying the right lotto ticket can return more than $100,000,000.00?!
    Not bad for ten-minutes' work.
    Now if only I had some inside connections.
    But I'm sure you have a point.

  • Senator Carl Levin||

    That's a shitty post, ed.

  • NeonCat||

    Sadly, whatever shortages might occur with regard to oil and other commodities, stale populist rhetoric is apparently infinite.

  • Tim||

    It's gonna be so great when Republicans storm back into power... and pass all the same laws and borrow trillions more from China.

  • Drax the Destroyer||

    Yeah, I'm pretty excited. I can't wait to drink a bottle of isopropyl alcohol to celebrate the occasion.

  • ||

    Most the debt is serviced by Japan (China is 2nd) and neither of them have any desire to purchase anymore USD bonds, they have enough to allow them to manipulate the prices of their goods in US markets already.

  • Dave Mc||

    As soon as heard the words "financial reform" pop out of Obama's very large mouth, I cringed.

    What on earth does union labor have to do with "financial reform" anyway? That said, it's not shocking at all.

  • Invisible Finger||

    The parties standing with Wall Sreet are the public employees unions.

  • cynical||

    Hey, a one page article!

  • Kroneborge||

    Overall good article, but couple of points.

    "How many of us are aware that these derivatives that politicians rail against are financial tools that often allow people to hedge bets and take insurance on risk?"

    As far as I'm aware no one wants to ban direvatives completely, instead they want to put them on an exchange, and make sure that the people backing them have adeqate capital in case of default. Hardly the end of the world IMO.

    As for appropriate risk, it should be set at a level where the systematic risk is low. This is actually not that hard.

    1. Make sure that firms have adequte capital (no more 30x+ leverage)
    2, Make sure that incentives are based on long term perforamce.
    3. Make sure there are NO too big to fail firms. If they are to big to fail, break them up.

    Simple

  • wheelock||

    Sure, all we need now is a perfectly neutral party with infinite intelligence to do all this "making sure" and judging when a firm has gotten "too big". Simple.

  • Kroneborge||

    Do you really think it would be that hard?

    It doesn't have to be an exact science. I bet we could name most of them right now.

    B of A
    JP Morgan
    Wells Fargo
    Goldman Sachs
    Morgan Stanley
    Fannie and Freddie
    etc, etc, etc

    It's not rocket science. If you think a firm's failure "might" wreck the economy, then it's too big.

  • Tom||

    Or people could practice personal responsibility and reap the rewards or suffer the consequences of their own actions.

  • Kroneborge||

    But as I think has been demonstrated, that will NEVER be allowed to happen.

    Any time you have a firm that is too big to fail, it will NOT be allowed to fail. So the only solution that to to make sure it's not that big.

    If not, we will continue to play the "heads I win, tails you lose" game of finance.

  • ||

    Kroneborge|4.28.10 @ 2:56PM|#
    "Do you really think it would be that hard?"
    Yes, and you admit it:
    "etc, etc, etc.."
    All those etceteras are the ones that matter.
    If centrally-directing an economy were so easy, why, a certain experiment in that regard would have delivered prosperous and happy populations instead of the starving, terrorized populations it did.

    In fact, you tripped again:
    "2, Make sure that incentives are based on long term perforamce."
    Please define this in specific terms. I don't care if you 'know pornography when you see it'; specifics, please.

  • Kroneborge||

    I said etc etc etc. Because I really don't feel like listing them all here. Like i said though, it shouldn't really be that hard of a call. If you think they "might" be to big, they probably are. Companies that need to raise more money than a regular sized bank can loan would go to the bond market.

    Note there is a HUGE difference between trying to centrally plan the economy, and setting up rules/guidelines by which people have to play by.

    I think regulator trying to micro manage companies doesn't work. But I think if you set up the rules and incentives the right way, you don't need too.

    As for as incentives here is one possible solution. Exeuctive level bonuses will be paid out over a 10 year period based on long term perforamce.

    Year 1 20%
    YEar 3 20%
    Year 5 20%
    Year 7 20%
    Year 10 20%

    By making sure that employees incenctives are focused on long term company performance instead of short term, the company will do better, and the overall economy will do better.

  • ||

    20% of what, if you mean 20% of profits that seems like a little much to me. If you mean 20% of the bonus they were going to get you realize that by year 5 they would get 100% each year, and if they got fired would get 100%,80%,60% and so on each year after that.

  • Roger Murdock||

    union labor

    Now there's a contradiction.

  • daveed||

    I guess that roughly $1 million Wall Street has given to Reid was a bad investment.

  • ||

    @daveed
    "I guess that roughly $1 million Wall Street has given to Reid was a bad investment."

    Why? The share price of big banks have gone up since "reform" became more likely.

  • ||

    @daveed
    "I guess that roughly $1 million Wall Street has given to Reid was a bad investment."

    Why? The share price of big banks have gone up since "reform" became more likely.

  • ||

    Probably not. Big business loves regulation since it keeps out small competitors.

    The US population REALLY needs to understand that.

  • BangBang||

    In a strange way I support the reform as I hope the economy is destroyed and the people in government are never put back in power again. I get tired of having to deal with the populist rhetoric bullshit over and over again. If not the support for war it's this shit. Every time I hear a politic speak I want to beat my head against the wall. Then there are the people which get mad when called socialist but then proceed to label people racist, fascist, greedy, nazis, sexist, xenophobic, dumb and everything else I forgot to mention. I mean shit, these people moralize more than the religious nuts. Man, I can't wait until I have enough cash to live elsewhere and just come back to the U.S. to visit and leave once the superlatives get thrown around again.

  • daveed||

    And let's not forget the $1.2 million that Chris Dodd got from Wall Street for his last campaign cycle.

  • daveed||

    Of the $9.2 million that the securities/investment industry gave to just the members of the Senate Banking Committee, a whopping 73% went to Democrats -- the ones pushing for this so-called Wall Street reform bill.

    Now, who really needs reforming?

  • ||

    As far as I'm aware no one wants to ban direvatives completely, instead they want to put them on an exchange, and make sure that the people backing them have adeqate capital in case of default.

    As far as I know, the reform bill doesn't set up an exchange for derivatives, so your "they" doesn't seem to include the big Wall Street players or the Democrats in Congress.

    I guess that roughly $1 million Wall Street has given to Reid was a bad investment.

    Only if he fails to get this bill through, as this bill will dig a moat around big Wall Street firms and give them a fast-track loan guarantee bail-out safety net.

    No wonder the CEO of Goldman said he supported it.

  • Jimmy 'Crack' Corn||

    I received this website via email, and wondered about the siginificance of the numbers. It states: "Fifteen years ago, the assets of the six largest banks in this country totaled 17 percent of GDP ... The assets of the six largest banks in the United States today total 63 percent of GDP."

    This is the articles justification for more banking regulation. I am not sure that this is that significant, and thought 'so what?'.

    From a libertarian point of view, can anyone on this board explain the significance of this asset increase to me?

    Thanks,
    Jimmy

    http://www.politifact.com/trut.....rown-said/

  • Kroneborge||

    Well, I'm not sure if I can explain it from a libertarian perspective, but I can explain it from an economics perspective.

    When you have a concentration of assets like that the failure of one of those companies won't just effect the company but could actually drag the whole economy into a recession/depression.

    ESPECIALLY, due to the amount of leverage these guys were using, and the interconnectenss of the companies.

    Also the increased complexity of all these new finance products makes it so that NO ONE actually new the real risk of their own company, OR the risk of counterparties.

    I'll give you a great example in late 2008 early 2009 when things were getting real bad, banks were starting to stop excepting LOC's (letter's of credit) from other banks. LOCS's are crucial for trade.

    If they had stopped, then trade would have ground to a halt and so would the world economy. This would have been just as bad as any protectionist bill from congress (probably worse).

    Hope that answers it a bit.

  • ||

    The problem is that firms are encouraged to become larger as government regulation increases. Small firms cannot address all the needless red tape as efficiently.

  • Kroneborge||

    I would agree with that to a certain extent. But remember, we are not talking about making all banks SUPER small. We are talking about preventing them from becoming mega banks like Citi etc.

    Also, if we kept them to a reasonable size, and instituted higher capital requirments (and no off balance sheet financing)

    then the need for a lot of the other regulation would dispear IMO,.

    Besides that the SEC is to busy watching pron to regulate anyway, lol

  • Rhetoric Inspector||

    Ahh, here's the problem... someone forgot to rotate the stock. We need to get rid of this stale rhetoric, and get some fresh product on these shelves.

  • ||

    I'll leave someone else to claim the 'libertarian POV', but I'm not sure it means diddly.
    *If* the assets *are* assets (not dead-beat loans that should be de-valued), so what? If and when that(those) bank(s) go bust (because those assets *aren't* assets), the remaining assets would be sold to other financial institutions. And the 'non-assets' would be de-valued.
    Assets at market value remain assets at market value; who owns them, AFAIK, is pretty irrelevant.
    And, just for the heck of it, the banks don't own them; the stockholders do.

  • ||

    oops.
    This was in reply to Jimmy 'Crack' Corn.

  • Jimmy 'Crack' Corn||

    Thanks Ron.

  • Some Guy||

    Everything else in the bill (horrible as it my be) pales in comparison to the creation of the "bailout fund."

    We might as well hand out get out of jail free cards at Italian restaurants as a way to crack down on organized crime.

  • ||

    You, sir, are a racist

  • ||

    WTF? It's sposta say Scorcece's Untalented Nephew.

  • the former||

    looks better

  • ||

    "How many voters are aware that the Senate reform bill would clamp down on "angel investors"—wealthy individuals who invest in startups with few regulatory guidelines. From Google to Facebook, it was angel investors who undertook the initial risk."

    Yes but it's not certainly not meant to block startups from competing with established firms as part of some corrupt deal. That's just having a "conspiratorial mindset".

  • ||

    We should judge a bill by it's consequences, not by it's intentions. Many times the politicians in DC get away with playing ignorant, as if they didn't know X bill would cause Y, and then they get to ride in as saviors.

  • Paul Hutch||

    There's always someone who wants to ride off the back of someone else. And independent arbitrator would make sense, but who knows whether they would be doing the same thing?

  • ||

    The congressional Dems are acting in the same deceptive, thuggish, and destructive manner as the Obama Regime. Ironically, their willfuil sabotage of capitalism and freedom is self-sabotage. These and the other depredations will be their undoing.

  • Hacha Cha||

    pass real financial reform by auditing the fed! too bad they are just legislating more of the same old crap that leads to financial disaster.

  • TruthOffering||

    The only reason any of these firms are even too big to fail is that they lobby government to legislate in their favor. This sort of "reform", as they call it in Washington, is precisely what makes corporations giants, simultaneously keeping small businesses from competing, thereby making them "too big to fail." This has nothing to do with capitalism and everything to do with crony capitalism; there is a big difference.

    Why do you think the VAT is being considered? Because the big corporations are the only ones that can easily afford such a tax. The VAT will further erode competition in the marketplace. Check out our article to find out why the VAT is so BAD!:

    http://www.truthoffering.com/e.....s-bad.html

  • economist||

    All other things being equal, banking systems with a high degree of consolidation have historically been more stable than those with less. For example, during the Great Depression, while banks in the US and Canada were subjected to similar economic pressures (generalized deflation, the breakdown of international trade, etc.), the United States suffered far more severe bank failures, because most states banned branch banking, whereas in Canada, branch banking was legal throughout the provinces. Most of the banking in Canada was under the control of ten major branch banks. The problem with "too big to fail" firms is that various government policies (credit expansion, Greenspan put, do I really need to list everything here?) encouraged excessive leveraging by the major banks.

  • Scarpe Nike||

    is good

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