You Are About To See The Meaning Of Unintended Consequences

In Congress usual fashion, in their attempt to fix a seriousproblem, financial regulation, they screwed it up by insertingpolitics in ways that will cause the opposite effect they intended,and will cause harm. While everyone agrees there were seriouslapses of good judgment and regulatory oversight in the period upto the crisis, and that there are some very good things in thebill, there are some parts that will cause real damage, and whichwill take a lot of effort to try to fix. Start with the consumerprotection agency. This will have very bad impacts on theavailability of credit, and, as a result, bad affects on economicgrowth. While there is no question many unscrupulous mortgagebrokers, Wall St bankers and others did things that are purelystupid and totally driven by foolish short term greed, the fix isnot to have Washington bureaucrats now making rules which will goover board the other way. If Elizabeth Warren is chosen, as theDemocrats want, to run the agency, then it will be a real disaster.She is a left leaning zealot who has never held a real job.Listening to her in several TV interviews, is to listen to someonewho thinks all of us in finance are crooks and that making a profitis immoral. Giving her that job will just imbue her ego withunlimited levels of arrogance which will lead her to want to showhow she is in charge, and she is going to fix the world. It will bea disaster. She will make it extremely difficult and very expensiveto provide credit to most consumers who are at the lower end of theeconomic spectrum. This will inhibit the economy and it willconsign that strata of workers to permanently lesser opportunity tobuild their own economic well being. While I am not in favor of allthe things that we saw with subprime and conduit lending, there isa needed balance which is very hard to find. Elizabeth Warren is sounbalanced that the outcome of the new regs will be terrible.

The other pending disaster is the well publicized derivativeslaws forcing commercial companies to put up margin for everydayhedges. Our boy Barney slipped that back into the bill at around 2AM when nobody was awake enough to notice. Barney also never held areal job, but despite almost everyone saying this would be very badfor the economy, Barney did it anyway. Now due to the wayCongressional rules work, they will not fix this as they think itis too much trouble to do so. The trouble the rules will create arevastly worse.