ICE COLD DISDAIN AND AN OBSESSION WORTHY OF LENIN
Fact And Comment – Forbes.com
http://www.forbes.com/2010/03/24/fact-and-comment-opinions-steve-forbes.html?boxes=opinionschanneleditors
A Grotesquerie
With an ice-cold disdain for public opinion and an obsession worthy of Lenin, President Obama and Speaker Nancy Pelosi rammed ObamaCare through the House by unprecedented parliamentary trickery, bribery and deceit. The President has thereby poisoned the national political well.
But the health care fight has just begun. Substantive constitutional court challenges are coming. Congressional elections are around the corner, and there’s a growing opposition that wants to undo what Obama has just done. The President will discover that, ultimately, the American people’s tenacity will overwhelm his–and he will be a failed President. But the cost of his public-be-damned attitude will be immense.
Marx Would Be Impressed
Socialists believe that the way to paradise is for governments to own “the means of production.” Thus, decades ago even democratic countries such as France and Britain nationalized considerable swathes of their economies to achieve “social justice.” That didn’t work so well; therefore, since the days of Margaret Thatcher there have been wave after wave of privatizations in Europe and around the world.
Today’s neosocialists are smarter than their ancestors. Instead of outright takeovers, they are achieving much the same goal through rigid regulations. ObamaCare is a prime example. Health insurers will eventually be private in name only, as the details of their policies will be dictated by governmental decrees. About the only thing companies will have any autonomy over–perhaps–will be their corporate logo.
Entitlements go hand in hand with sweeping, overbearing regulations. President Obama wants higher education in this country to be free of charge, which is why his Administration is pushing for a government takeover of student lending. With such powers it will be but a wee stretch to intrude even further into the governance of the nation’s colleges and universities–including, ultimately, admissions.
Senator Chris Dodd’s (D–Conn.) recently unveiled package of financial regulatory reforms is a neosocialist’s dream. It is also destructively stupid. The bill doesn’t address the key causes of the recent economic crisis: the Fed’s too loose monetary policy, the behavior of Fannie Mae ( FNM – news – people ) and Freddie Mac ( FRE – news – people ) in buying or guaranteeing almost $1.5 trillion in junk mortgages and the failure to properly regulate credit default swaps and other derivatives.
Dodd’s punting on swaps is astonishing. Years ago Washington should have mandated that such instruments go through clearinghouses so there’d be full transparency and proper margin requirements. After all, classic derivatives such as soybeans and currency futures have had margin requirements and clearing mechanisms.
In the name of fighting Washington’s too-big-to-fail doctrine for major financial institutions, Dodd’s bill is a de facto institutionalization of them. Financial outfits that are deemed a threat to financial stability will actually be protected by the government. The bill establishes a $50 billion fund to deal with big failures, but the fact that such a fund exists tells the market that when trouble comes big banks will be saved. Thus these biggies, like Fannie and Freddie, will have lower costs of borrowing–debt is by far the biggest component of their capital–which will put their smaller competition at a crippling disadvantage.
Moreover, the bill doesn’t address the problem small businesses have with the current credit system. Bank examiners are applying a mark-to-market mentality in evaluating bank loans. This is an unfair bias toward bigger-sized borrowers and, of course, the debt-hungry U.S. government. Thus the paradox of today: bargain-basement rates of interest for larger firms and higher costs–or no credit at all–for smaller borrowers.
With favored access to low-cost debt the big will get bigger–and they will be beholden to Washington.
Dodd’s scheme would create a new regulatory bureaucracy, the Financial Stability Oversight Council (FSOC), with sweeping powers for itself (and the Fed). Chief among its tasks would be assessing risk of banks and their products and activities, yet Washington has demonstrated that it is incapable of judging risk. Washington would have vast sway over the operations of the U.S. financial system. In this new world banks would have to get permission from Washington for any innovation. If an institution incurred Washington’s displeasure, bureaucrats could order divestitures of businesses or could even put a firm out of business.
The Dodd bill is an open invitation for government to micromanage the whole breadth of finance in America, including even your local pawnshop. Nationalizing the U.S. financial system without formally nationalizing it–Karl Marx would be drooling in delight.
Washington already has the power to impose requirements–for instance, if you want to buy stock on margin, you have to put 50% down. In 2004 debt restrictions on investment banks were lifted by the SEC. Reimpose them. One overdue action is repealing the 2000 law banning the Commodity Futures Trading Commission from regulating new financial derivatives.
Sensible debt-to-equity ratios, including stiffer equity requirements for volatile short-term debt, and clearinghouses for almost all derivatives would efficiently accomplish what Dodd’s monstrosity purports to do and manifestly does not.
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