Friday, January 22, 2010

New Bank Rules Not the Answer

Let's think back: what was the main driving factor behind the current recession? The main issue was risky mortgages -- loans and loan terms to people who would be unable to meet their obligations in a down tern.

Most of us agree that the American taxpayer should not be held hostage by a bank that is too big to fail. The Obama/Volcker plan (not the Geithner or Summers plan) is to ban banks from running their own trading desks and owning, investing in or sponsoring hedge funds and private equity groups.

There is little indication that this will solve the problem as it was not the main factor of the recession. It seem more political than prudent regulation. It appears an administration leveraging the unrelated issue of obscene bonuses paid to investment bankers (they've been doing this for years).

As long as the federal government is willing to bail out firms, regardless of what might cause their issues, these firms will factor this into their risk posture.

Why not take a stance of not bailing any private firm out? Why not get out of the housing mortgage market by eliminating Fannie Mae and Freddie Mac? Since when is it the government's job to ensure everyone owns a home?

Obama is rightly being labeled as anti-business. What Obama/Volcker have done is add another impediment to American business. We all would be better served if the government quit adding regulation and focused more on taking much of it away.

No comments: