Wednesday, April 28, 2010

The Greater Threat

Though there appears to be some confusion regarding the priority of the legislative agenda right now, it is apparent that sooner rather than later Congress will be looking to take up the subject of Financial Reform in this country. 

There is little doubt that miscalculation in the the relative values of real estate and the stock market in this country contributed significantly to the financial dilemma of unprecedented proportions beginning in 2008. There is little doubt as well that the public was duped by the system of banks and brokers, screwed by the regulatory processes that we counted on to protect us, and clueless of the rather arcane rules involved with the banking industry in general, and those curious things known as financial derivatives in particular. 

I will not attempt to provide specific definitions on these particular items, as even Wikipedia admits that its explanation may involve too much jargon and be too complicated to understand without further clarification. Neither will I attempt to apologize in any way for the actions of bank managers and stock brokers who appeared to have proved little more than thieves and prostitutes while selling us out. They took our trust in the system as well as our money; and if it can be in any way proved that any broke the law, they should be jailed. 

None of this appears to matter anyway, as Congress (which is becoming well-practiced in attempting to repair things that it doesn't understand either), has decided that only now can we bring all of this to the attention of the American people. Now many might question why it is that if the issue of this abuse (real or imagined) is such a critical one, it has taken so long to bring it to the public eye.  

Some might even be cynical enough (like me) to see that we are well into an election year, and the timing is all about the fact that there is now enough potential political advantage to both sides to finally bring up the issue. Some might even ask if the attention being drawn to one evil group might draw attention away from some other. For as we join in the charge to castigate the moneylenders, we might want to notice that the crisis is also far enough in the past that many will forget that there was already government oversight in the banking industry and the stock market ... oversight that failed rather miserably. 

The Security and Exchange Commission (SEC) was apparently incapable of oversight of its own employees, let alone the markets which they were tasked to watch. Forget that some of those employees were too busy surfing the Internet for porn to perform the tasks assigned to them, the truth of the matter is that they didn't appear to understand the house of cards being built as stock brokers and banks became interchangeable, or make any attempt to limit risks with other people's money which increased exponentially as a consequence of such inaction. 

Meanwhile, the House Oversight Committee on Banking not only allowed banks to become further embroiled in the risky nature of certain parts of the stock market, but encouraged (threatened) the banking industry to make riskier investments in the mortgage industry in order to provide home ownership to all. At the same time, they stood idly by as these companies loaned money in excess of inflated housing values to those who could not afford it. When the lack of regulatory oversight responsibility on the government's part met the fiscal irresponsibility of banks gambling on drawing an inside straight in the derivative market, a perfect storm of economic unsustainability was created and we have all been forced to live wit the results in the days since. 

We must now deal with the future rather than the past however, and our concern might better be to look at the continued political philosophy that if improperly handled regulatory practices have failed, more regulation is the best and only answer to fix it. If the existing regulators fail to fulfill their responsibilities, then the only answer is to add even more regulators to fix it. This seems to be philosophy of Congress when dealing with anything from Income Tax to Social Security, and while the while the complexity of the regulations continues to grow (the Tax Code is over 13,000 pages currently) and the number of regulators continues to grow as well; the problems of understanding these complex regulations and proper oversight of such programs yet remain. 

In other words, both groups have taken billions of dollars of our money over the years to keep for us. Both groups appear to be untrustworthy with this money, having squandered it for their own gain while ostensibly holding it in trust for our future use. Both seem incapable of following the often conflicting, confusing, and often contradictory rules either by monitoring themselves or under the oversight of outside groups set up specifically for this purpose. 

One cannot help but wonder therefore, whether the greater threat to Main Street (as politicians love to call us) is Wall Street or Congress?

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