Political Spectrum: A View from the Right — Does the financial industry need more government regulation?1
May 24, 2012 by Mike Landry
When I was a kid there was a newspaper cartoon by Harry Shorten and Al Fagaly featuring ongoing scenarios about people doing the kinds of obnoxious things that get under our skin.
The cartoon was “There Oughta Be A Law.”
I guess the cartoons were funny then. Today, that title turns me off.
Because when crooks break laws, government responds by developing new ones.
Take for example Enron. It crashes, people are ruined. There oughta be a law! So legislators pass new laws to ensure another Enron cannot occur and in the course of it hamper the abilities of honest companies to conduct their business. Never mind that masterminds who created the Enron collapse went to jail under laws already on the books.
Then there’s the whole foreclosure mess.
It portrays greedy bankers making loans to people who could not afford them, then like the villain in an old melodrama, cruelly foreclosing. Actually, bankers did make loans to people who could not afford them. Because government people made noises like “Nice little bank you’ve got there. I’d hate to see something happen to it” if bankers did not make those loans. Bankers, who hate risks, figured out a way to comply. Oversimplified, it went something like this: bankers would make the loan, then, in effect, sell shares of the loan to people around the world. As a result, the bankers could make money on the origination fees and avoid the risks of the shaky loan by selling it out the door. And as investors all over the world sawAmerica’s real estate prices going up, they were happy to invest in those fractions of a mortgage. After all, what could go wrong?
But, of course, what goes up comes down as we saw in the Great Housing Bubble. House prices crashed, neighborhoods turned into ghost towns, and sometimes there was no single entity to foreclose on a property because the mortgage had been split so many ways.
There oughta be a law!
And there is: Dodd-Frank. Its post-bubble regulation is now pushing banks to spend more time in complying than in making loans, as American Bankers Association President (and former Oklahomagovernor) Frank Keating wrote last year in the Wall Street Journal
And there are costs.
My bank now charges fees for checking accounts. Someone who recently got a home mortgage commented to me on all the paperwork they had to go through. That new language on your credit card statement – you think all that compliance comes for free?
Are there needs for new laws and regulations? Sometimes, especially with the changes in technology. But mark it down: someone will learn all the new laws and regulations and will develop a scam to beat them. People will lose money and get hurt.
Possibly the crooks will be caught and will go to jail.
But that won’t be enough. There oughta be a law! Legislators will feel a need to Do Something.
And you know who will ultimately pay for it.