American Elephants

The “Historic” Financial Reform Bill Isn’t Historic, and Doesn’t Reform. by The Elephant's Child

The “Historic” Financial Reform Bill being celebrated by the Obama administration may do more political damage than political good.  The bill barely passed Congress, and like all things “Progressive” applies the wrong remedies to the wrong causes.  It is 2,300 pages of appointing overseers and establishing offices and regulating that goes off to assorted agencies who will actually make the rules and regulations, and apply them.

Do you know what 2,300 pages looks like?  A ream of paper, roughly 2½” high, is 500 sheets.  If you have a printer, you probably buy your paper by the ream. [Remember when they told us the computer age was a paperless revolution?]

Democrats were so anxious to produce financial reform, to get voter brownie-points for “fixing” the financial crisis, that they didn’t bother to wait to find out what actually caused it. So, of course the real causes remain unaddressed. What began as a promise to modernize and streamline the financial system became 2.300 pages of new agencies and new powers for the same authorities that created the financial crisis in the first place.  The bill is crammed with uncertainty and costly regulations on small businesses.  They  made it easy for Republicans to deem it a “Main Street Takeover,” and to justify voting against it.

President Obama was so anxious to go after the Wall Street “fat cats” that he forgot that Wall Street fat-cats supported him in the last election.  He had the support of the Business Roundtable, and even modest support from the Chamber of Congress.  All gone.

This was preceded by the “Historic” 2000+ pages of ObamaCare that hands America’s healthcare over to a bunch of Washington bureaucrats, raises healthcare costs dramatically, and just as in the Historic financial reform bill, does not address the real problems in our healthcare system, which is too much government interference, and makes things worse while not doing what it promised.

Which, in turn, was preceded by the “Historic” 2000+ pages of stimulus, that did not stimulate the economy, but rewarded the president’s campaign supporters and Congressional supporters.  Most of what was spent was wasted — all those “shovel-ready” projects weren’t shovel-ready, and the money for “green projects” has gone to China and Korea.  Around half of the stimulus has been saved to be spent just before the 2010 elections or the 2012 elections to improve Democratic prospects.

The cause of the financial crisis — was centered in a government effort to redistribute wealth — a kind of affirmative action for poor people, a reckless government extension of credit.  The trends that shook the world economy came out of Fannie Mae and Freddie Mac, the Federal Housing Administration (FHA) and their regulators in the Department of Housing and Urban Development (HUD).

By 2000, HUD required that low-income loans make up 50% of Fannie and Freddie’s portfolios.  The Bush administration, in a burst of  “compassionate conservatism” raised it to 56%.  Getting more Americans into their own homes was a goal of both parties.  The FHA and other programs were exposed to about $2.7 trillion in sub-prime and Alt-A loans.  Peter Wallinson said that government-mandated loans accounted for two-thirds of junk mortgages.

Sometime in the past generation, the old-fashioned way of reviewing mortgage applicants — face-to-face  interviewing, rigorous investigation of the applicant’s character and standing in the community— were discarded.  The change was not a result of bankers getting sloppy, but inquiring too closely into the borrower’s credit-worthiness would have bankers in danger of  breaking anti-discrimination laws, especially since Bill Clinton cracked down on alleged “red-lining” or racial prejudice in mortgage lending. America spread a “safety net” under our less-fortunate citizens by wanton extension of credit.

In creating the 2,300 pages of financial reform, Congress refused to investigate Fannie Mae and Freddie Mac, made no effort to reform the two huge agencies, did not look into the FHA, nor the regulations emitted from the HUD.  They did, however, order up all sorts of regulations on credit card companies to be sure that they weren’t being mean to people. “Too-Big-to-Fail” remains, so taxpayers continue to be on the hook for bad management.

For the most part, we don’t know what is in the bill.  All those agencies are instructed to issue regulations and rules, most of which will make doing business more difficult and encourage more unemployment.  The causes of this financial crisis were unaddressed.  We don’t really know what seeds have been sown for the next one, nor what damage the new rules will do to the economy. We can be very sure that there will be unintended consequences — lots and lots of them.

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