Rooted in Reason: Nurturing the Seeds of Liberty

More Government Oversight Will Lead to More Capture by grassroothawaii
July 21, 2010, 2:51 pm
Filed under: Uncategorized

By Paul Lazaro

Just hours ago, President Obama signed sweeping regulatory reforms in an effort to prevent future financial collapses. According to The Christian Science Monitor, the reforms will establish two new government institutions, the financial oversight council and the consumer financial protection. While much has been said about the method in which these two bureaucracies will approach “financial reform,” one major problem with the bill not addressed by its detractors is the fact that most of the reforms are not even written yet.

One major problem associated with placing economic systems like this recent bill in the hands of regulators, is the same problem associated with entrusting Congress with economic oversight: They are political actors who are easily captured by interest groups. If any firm provides evidence for capture, it’s Goldman Sachs. Both New York Fed Chairmen Stephen Friedmen and current National Fed Chairmen Ben Bernake both worked for the multi-billion dollar firm before ascending to their government posts. In short, putting former wall street executives in charge of Wall Street reform is like putting Barry Bonds in charge of Major League Baseball’s steroid policy.

It’s the market’s disregard for politics which ultimately makes it a more effective rating agency and regulator than any government bureaucracy. Critics argue that it was the skewing of “free market” rating agencies which led to misinformation within the marketplace. However, these same critics have no response to the very real counterpoint that government had regulated rating agencies so stringently before the collapse that entrance into the rating agency market was virtually eliminated, creating a cartel which faced the same Wall Street capture as government. Less regulation would have meant more rating agencies, which would have translated into more people keeping their eye on Wall Streets dubious practices.
In the end, new regulations won’t help protect consumers any better unless regulators somehow breach the capture fence which is so pervasive in Washington. My prediction on actual financial reform: fat chance with these fat cats.


1 Comment so far
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paul– Good job. And just think, President Obama does not like Fat Cats. But, if I ever saw a Fat Cat it would be Obama himself. What does it cost to send him to Texas for a day?

Comment by Dick Rowland

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