Isn't Risk What It is All About?

Posting has definitely slowed down as Skyping has gone up! Hey, Mrs. 2outof4 deserves the attention!

Today President Obama and the Administration unveiled a framework for re-regulating the financial services industry. Read a description at either of the links below:

http://www.washingtonpost.com/wp-dyn/content/article/2009/06/17/AR2009061701834_2.html?hpid=topnews&sid=ST2009061703105

http://online.wsj.com/article/SB124524649229423271.html

There is an 85 page white paper linked within the two articles. I see some good, such as the plan to provide for the orderly wind down of failing banks in to protect depositors and prevent general panic. This was the manner in which I thought the original melt down within the banking sector should have been dealt with instead of the taxpayers funding all these zombie banks - but they could not accomplish it in a timely manner.

However, as with most attempts by government to regulate markets, this plan is based on poorly constructed goals and silly premises.

Both articles note the following quote. "Millions of Americans who have worked hard and behaved responsibly have seen their life dreams eroded by the irresponsibility of others and by the failure of their government to provide adequate oversight," Mr. Obama said. "Our entire economy has been undermined by that failure."

What does this mean? As I have said from the beginning, there has been a great amount of abhorrent behavior by many players in the unfolding financial crisis - think the orange man himself, Angelo Mozillo, who the government is going after for insider trading. But from the beginning I have said that just about everybody was compliant in their quest for a quick buck. That includes the lunchroom worker in Brooklyn with six mortgages.

Life dreams have eroded for people who took stupid risks. That ranges from the bank prop desk using little margin to the family of four that purchased a home which left it with a mortgage payment just under its monthly income.

If the Administration is broadly referring to retirement funds, yes people did lose out. However, people should realize that markets will not go up for ever. I did not expect to lose 40%, but I did not bank on 10% a year into perpetuity either. I've seen proposals that that suggest Government run 401k equivalent that guarantee 3% a year. That plan goes hummingly until the market has a 15% down year and blows the whole system out of whack!

We must keep some degree of personal responsibility and risk taking in the system. This proposal sounds like the government wants to control risk taking. How does the Administration think that the US became the most productive in the world?

Strangely, it looks like the WaPo article that I posted above changed whilst I was writing this post. The one I read originally mentioned that the White Paper suggested regulation for banks to make loans in the areas of their deposit base. If this doesn't smack of Fannie and Freddie and the old days of mortgages/loans for everyone, I don't know what does.

Clearly 2outof4 supports free markets and limited interventionist policies. However, we do not want to be blind to any benefits of the current proposal. What do you see in it that may actual help the economy and America's long-term productivity?

-2outof4