
"No matter what pundits say, we are nowhere near a laissez-faire situation."
Regulators cannot avert next crisis
By Johan NorbergAs usual after a financial crisis, we hear demands for new controls and regulations to stop it from happening again. But since every crisis has led to thousands of new pages of regulation, why is it that regulation doesn't stop crises from happening again? No matter what pundits say, we are nowhere near a laissez-faire situation. Look no further than the US federal institutions in Washington, DC, and we find 12,113 individuals working full time to regulate the financial markets. What did they do with the powers they had?
Made mistakes. American politicians, central banks and regulators were just as eager as speculators to expand the housing bubble. They just had a bigger pump.The US Federal Reserve lowered interest rates from 6.5 per cent to 1per cent between 2001 and 2003, and housing prices soared. Starting in 1995, the government threatened banks and thrifts with regulations and legal challenges if they did not extend more loans to poor neighbourhoods and a government-sponsored company such as Fannie Mae used its state guarantees to purchase more risky loans and expand the sub-prime market.
Is the solution to the crisis really to give more power to people and institutions that contributed to bringing it about?
The problem with regulation is that it is always a response to the last crisis. Generals fight the last war and always try to avoid the mistakes made then. So we get new rules that target the mistakes that everybody already knows they must avoid. The next possible crisis and its causes are so far unknown, and our regulations may have no effect or even make them worse.
After the exposure of accounting scandals in companies such as Enron, we have seen more drastic accounting regulations. We all wanted to avoid another Enron. "Fair value accounting" was one of the results, which means that financial institutions had to mark their assets to market. If a bank has mortgage-backed securities for sale, their value is registered as the price it could get if it sold them on the market today, rather than taking historic prices into account.
It sounds reasonable, but the problem is that when there is panic in the market, no liquidity and no buyers, that price is very low. So suddenly all institutions see the value of their assets drop at the same time. If they sell to make up for the loss, the prices fall even more, and accountants keep marking down assets. The result is that a bank or thrift that looked very stable a few days ago can suddenly turn out to be insolvent, at least on paper.
William Isaac, who used to be chairman of the Federal Deposit Insurance Corporation, has said that if fair value accounting was in place in the 1980s, all the big banks in the US would have collapsed and the recession might have become a depression.
These accounting rules are "like fighting a fire with gasoline", as Steve Forbes has pointed out.
In other words, regulation that was introduced to solve yesterday's problems can easily become a big problem around the corner.
The only thing we know for sure is that we don't know where the next problem is going to come from. Our best way of preparing is to be flexible and to make sure that individuals and institutions are ready to learn and adapt as soon as new information is available. Regulation that locks in particular solutions or blocks others could stand in the way of that flexibility.
Another result of the accounting scandals was the Sarbanes-Oxley Act of 2002, which required US companies to introduce rigorous internal controls and to send regular, detailed financial reports to the federal authorities. The result has been new costs for American companies, fewer public offerings and a flight of talented directors.
The present financial crisis has swept away the independent investment banks on Wall Street. It is now obvious that they couldn't afford the risks they took without having bank deposits that have made life easier for big commercial banks. But why did independent investment banks evolve in the first place? Because American politicians outlawed universal banks as part of the New Deal, a ban that was in place for 66 years.
The Glass-Steagall Act, which enforced that ban, was repealed in 1999: one piece of deregulation on which some people now blame the crisis. On the contrary, it was important and it was done in the nick of time.
If it hadn't been repealed, J.P. Morgan would not have been able to buy Bear Stearns, Bank of America could not have bought Merrill Lynch and Morgan Stanley and Goldman Sachs would not have been able to save themselves by becoming bank holding companies.
Regulations and controls often result in new difficulties even when the intentions of policymakers are good and the hopes are real. That does not even begin to address the problem that a lot of new regulations are just symbols, enacted to show people that politicians have done something, even if they know that it does not really address the problem. It follows the politicians' logic from the British television series Yes, Prime Minister: "Something must be done. This is something. Therefore we must do it."
This logic is as old as the crises. After the collapse of the South Sea Bubble in 1720, the British parliament delayed the Industrial Revolution by impeding the free formation of joint stock companies for more than 100 years.
And after the Depression, American politicians made risk-handling more difficult for two generations by banning stock options.
Regulators and politicians always fight the last crisis, and when they do they run the risk of making the next crisis more severe.As we don't know what the next trigger will be, we can't regulate against it without introducing such drastic measures that financial markets cease to function effectively.
And that would be a terrible loss, much, much worse than any financial crisis we could imagine. Buying bad assets from financial institutions may be a bad idea and may cost the US treasury $US700 billion ($935billion), but financial markets help the world economy to create that amount twice a week.
Speculators and investment banks have shown that it is difficult to keep a cool head when there are large sums of money at stake. But the same goes for politicians and regulators. And the only thing more dangerous than financial crises may be our way of responding to them.
Johan Norberg is the author of In Defence of Global Capitalism and a senior fellow of the Cato Institute in Washington, DC.
Obama (Soetoro) has for years been groomed for the position. With the qualifications of nothing more than an Indonesian peasant he was schooled in Marxist ideology. Becoming a soldier for the cause, he has been an able student.
In his own words he has described perfecting the art of « Moving slowly around white people » so as not to alarm them. Like a herdsman of cattle, it is best not to act suddenly when moving beasts lest they stampede.
His slow, stutering, halting, pausing, reflective style of speach while READING a telepromter is an example of the « Moving slowly art form », just as voting « Present » hundreds of times in the Illinois legislature would show no sign of a sudden or alarming movement.
If Obama (Soetoro) had, currently at his disposal the means to take us away we would already have homes invaded at night with the owners never to be seen again. This is not fantasy. This is the way it happens and has been done in Russia, Germany, and countless Banana republics. Only a few have to disappear before the herd as a whole is seduced into compliance.
While our attention is diverted to the consideration of our homes, families and jobs, (for those that actually work), the debauching of the currency moves forward at full steam. The Federal Reserve continues to print money out of thin air to meet the demands of the entitlement classes. The word entitlement embodies two classes of beneficiaries. Those that extract from the state the means to survive for having done nothing and those that have worked and paid into a system with a promise of reimbursment.
With a currency based on nothing more than the « full faith and credit of the national treasure », the one component that affects both entitlement classes is that of faith. That part of the equation, trust, ingrained in the American psyche as symbolized by the handshake or a persons word is now suspect. The American government, has produced a ponzi sheme of its own that will make Bernie Madoff look like a small time pickpocket. We are at the gates of the unraveling.
In the meantime Obama (Soetoro) moves slowly so as not to scare the herd and shatter the faith, he is dealing with a dilema of his Marxist own. That dilema is that the left was not prepared to be this far, this soon and this easily. It is to the point that EVEN PUTIN IS CALLING FOR RESTRAINT! The Marxists have an ideology but no plan. Steering the ship of state is becoming the equivalent of a group of college students commandeering the space shuttle only to figure out they have no business to what they are about. The danger for all of us is whether or not the Soros, Ayers, Obama (Soetoro) amature hour contestants panic or can retreat from the thin ice back to the safety of the shore. The danger hinges also on the degree of derangment the pirates have in their objectives. Is it as good to sink the ship as it is to hijack it to a port?
If faith is the glue that currently holds everything together then the strength is being tested. At a gun show in my rural state last week a turnout that usually garners a few hundred brought out thousands. The more bizare behavior was the attitude that reflected in the purchasing of products as if they were the last on earth. Any price for any condition.
Obama (Soetoro) may have an elitest mentality and ideology to share, but the trust Americans have seem to be in their own instincts
Obama the Uniter is good at making divisions.
So here we are in the midst of a deep recession and Obama’s collectivist instinct (as FDR’s before him) causes him to push for spending targeted for unions. It’s one thing to be grateful for the hundreds of millions unions spent to get him elected. It’s quite another to threaten the economy by giving in to this stupidity:
Obama has issued four executive orders to benefit unions, nominated a union pawn as labor secretary, and picked a union lawyer to head the National Labor Relations Board. Aside from ramming card check through Congress, there’s not much more he could have done in his first month in office to please labor leaders.
One executive order says private contractors on federal construction projects should hire union workers. This puts non-union contractors, especially small minority companies who compete by making lower bids than contractors with unionized workers, at a distinct disadvantage. Another order bars federal contractors from being reimbursed for expenses incurred in trying to persuade employees not to form a union. A third would force contractors to retain workers when taking over a project from another contractor.
These orders will have an immediate impact. Most (if not all) of the infrastructure projects funded in Obama’s $787 billion stimulus plan will have union workers. Given the higher labor costs, this means fewer of the estimated 1 million construction workers currently unemployed will find work.
To make matters worse, the « prevailing wage » required on federal projects by the Davis-Bacon law will apply to all projects. This is supposed to be the average wage for construction workers in a region, but it usually turns out to be the higher union wage. So fewer workers will be employed even on non-union projects.
There’s a double whammy here. Despite rising unemployment, a sharp limit is being imposed on hiring. And taxpayers will be required to pay considerably more for construction projects than necessary. This should be unacceptable in good times. In a recession, it’s worse.
No doubt about it; unions have a friend in our new president. And the chances that a future America will see it very difficult to get a job unless you are willing to join a union are increasing – just as Obama and Big Labor intend.
On a probablement pas envoyé ce texte au Kanzleramt dimanche matin:
Les pays de l’Union Euro sont incapables de balancer leur budgets mais on veut nous faire croire qu’ils dire aux banques comment agir.
Si une banque décidait de gérer son capital de la même manière que l’état gère son budget, elle serait en faillite depuis longtemps.
Et Sarkozy qui s’imagine avoir l’autorité pour donner des leçons de morale.
Quelle sinistre farce.
Le capitalisme n’a pas besoin de nouvelles fondations. Notre économie est tout, sauf du capitalisme.
Gordon Brown devrai s’en tenir au dicton qui dit: «Mieux vaut se taire et passer pour un idiot que de parler et le prouver.»
En plus, Merkel est contente: l’Espagne et la Hollande sont d’accord avec son idée de faire diriger l’économie par l’ONU.