Reason.tv Replay: 3 Reasons The New Financial Regs Won't Fix Anything

Original release date: Friday, July 2, 2010.

The financial reform bill currently working its way toward President Barack Obama's desk for signing is being touted as the biggest overhaul of the banking and investment sectors since the Great Depression.

But the new regs won't be any more effective than the ones they replace in fixing anything or preventing the next major panic for at least three reasons.

1. New Watchdog, Old Tricks

They create a new watchdog consumer agency designed to protect consumers from their own supposed stupidity. You'll now be facing fewer choices when it comes to getting credit cards, loans, and doing other basic financial transactions.

2. Never Too Big To Fail

They replace "Too Big to Fail" with… "Too Big to Fail." One of the reasons why major financial institutions played Russian Roulette with the economy was because they were betting they would get bailed out. Which is precisely what happened. The new rules codify the idea that the government will make sure certain institutions can never fail. And if you think the big boys won't game that system, then you don't understand how well Citigroup, Goldman Sachs, et al have come through the current meltdown.

3. Housing Bubble Trouble

The financial crisis was set into motion by government policies that encouraged people to buy homes they couldn't afford at prices that were unsustainable. Between desperate attempts to keep people in houses and to keep interest rates below an effective rate of zero, the government continues to pour more money down the same rathole.

Markets work best when the risk and reward incentives are clear cut. When investors know they really can lose it all, they act responsibly with their money. If regulators think they can create a system that cushions us from bad decisions and doesn't encourage bad behavior, it's a delusion we'll all be paying for for a very long time.

Approximately 2 minutes. Produced by Meredith Bragg and Nick Gillespie, who also hosts.

Go to Reason.tv for downloadable iPod, HD, and audio versions of this and all our videos, and subscribe to Reason.tv's YouTube channel to receive automatic notification when new material goes live.

Comments

[James Ard]

The bill is going to burden community banks with unbearable regulations that will give the big banks that ripped us off the first time all of the market. Jesus Christ these people are evil.

[Suki]

So the small banks will get a bailout!

[JoshINHB]

More likely bought out.

[?]

Happy Independence Day?

[hmm]

More legislated consolidation that lead to larger institutions that are too big to fail. Kind of like how the FDIC works.

[J]

Evil? A system where a few giant companies ruled the market and worked in tandem with the government turned out so well in Japan. At least that's what is says in the book I'm reading from 1989.

[sage]

I wonder in which manner Tim Geitner prepares his taxes?

[Rich]

I wonder in which manor he prepares them.

[Sam H]

A nation divided against itself cannot stand. We will add 1 TaxACT user; it's bipartisan that way.

Come on, didn't you hear the guy? Victory. Finish line.

[Not an Economist]

When all you have is a hammer, everything looks like a nail.

The only tool these people understand is using the government to solve problems. Therefore, their solution to all problems is a governmental solution, either through a regulation or a program. They can't conceive of another solution.

[Neu Mejican]

Okay, so this one is only 1/3 on topic...but it is one I thought folks 'round these parts might want to formulate a response to.

http://www.3quarksdaily.com/3q.....an-sa.html

As a teaser: "...the problem isn't too much government: it's too little government."

[BakedPenguin]

Wow. Conflating deliberate murder with accidents, a total ignorance of how derivative financial instruments are used to defend against risk, rather than add to it, and a total disregard or denial for how government actions cause or contribute to the problems he's decrying.

BP may well have been negligent, and they should pay for the economic destruction they've caused. But why they would want to cause a disaster doesn't get explained - because it doesn't make sense. Even assuming these are Monty Burns types, tenting their fingers and cackling with glee at the thought of others' misery, why the fuck would they waste tens of thousands of barrels of their product to do so?

"At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people -- mostly children -- couldn't afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level."

Right. The price of grains is totally due to market factors, especially commodity futures. Governments around the world never do anything to affect their price. Is this incredible naivet?, or is he just lying his ass off? After they get rid of derivatives, and some farmers who used them to hedge risk go out of business, I'm sure they'll blame that on the market as well.

The jerk who wrote that surely supports "alternative fuels", and the government enforced rules demanding more grains go to the production of ethanol. That was a big factor in the rise of grain prices. I'd like to hear this idiot's logic as to how futures contracts, in and of themselves, caused the price of grains to nearly double. What was the mechanism? Supply and demand explain the situation far better than some vast conspiracy. And the demand side was greatly distorted by the use of food grain for ethanol. The fact that the price came down simply means producers were doing what they always do: adjusting to conditions. There is now a tequila shortage because Mexicans farmers switched from growing cactus to growing corn.

Another Yakuza-like gang of financial terrorists goes by the name deficit hawks. They are terribly concerned about deficits, especially now that a black guy is running up these deficits instead of the white fellow before him.

Pushing back on deficits is a good thing, but pushing back on them NOW is straight-up class warfare. Hooverism. When the private sector is not spending money to keep up employment, the government has to do it.

The government does not create jobs. While many of its functions are necessary, all government money comes from the free sector, either in a tax, a fee, or a stealth tax of inflation, which is what this guy is advocating. And he is advocating it at a time when businesses are scared to hire, scared to move. He plans on making sure the private sector is not spending money.

Also, his comments about the deficit hypocrisy are somewhat fair when talking about Republicans, but total bullshit when talking about libertarians. And the "racist" shit is also suspect. He honestly thinks even the Republicans would be on board if Hillary or Edwards was in charge?

As for his comments about the wars - I would have no problem if we were to leave Iraq and Afghanistan. Europe too, for that matter. One interesting thing is that he doesn't fault Obama for continuing the wars whatsoever.

I could go on, but I think this s/b enough.

[Brian Defferding]

Bu-bu-but Canada's banks are heavily regulated too and they're doing great!