|Let's Ask for Forgiveness||Looking Round the Corner|
by Christopher Chantrill
April 04, 2008 at 10:46 am
THE BUSH administration launched another plan Monday to do something about the mortgage mess.
In a major speech Treasury Secretary Hank Paulson proposed a Blueprint for a Modernized Financial Regulatory Structure.
This is Part Three of the Bush administrations plan to Do Something.
Part One is to have the Federal Reserve System print lots of lovely money. Part Two is the plan to have the United States Treasury drop millions of tax rebate checks out of helicopters. Part Three, the one just announced, is a plan to play musical chairs with the federal agencies charged with financial regulation. For starters, the Securities and Exchange Commission will be merged with the Commodity Futures Trading Commission.
Predictably, the New York Times views the proposed changes as a relaxation of regulatory standards and a cave-in to laissez-faire. In a news analysis article Nelson D. Schwartz and Floyd Norris call the Treasurys Bluleprint a reluctant eye on Wall Street.
This reluctant action is a plan that, according to Damian Paletta and Kara Scannell at The Wall Street Journal, gives broad new powers to the Federal Reserve System.
The Federal Reserve could emerge with significantly enhanced powers to oversee financial markets. Mr. Paulson is expected to recommend that the central bank play a greater role as a "market stability regulator," with broader authority over all financial market participants.
Apart from the Feds new role as as a broad market stability regulator the plan would create two new regulatory bodies, a
Prudential Financial Regulatory Agency, would oversee the financial regulation of the insurance and federally insured banks. Another regulator, the Business Regulatory Agency, would oversee business conduct at all the companies.
Also included in the reluctant reform is a new agency to oversee the mortgage industry.
Mr. Paulson plans to call for the creation of a new entity, called the Mortgage Origination Commission, according to an outline of the Treasury Departments plan, which was first reported by the New York Times. This new entity would create licensing standards for state mortgage companies. This commission, which would include representatives from the Fed and other agencies, would scrutinize the way states oversee mortgage origination.
After Part Three of the Bush administrations plan there is still Part Four, the plan from committee chairmen Senator Christopher Dodd (D-CT) and Rep. Barney Frank (D-MA) to assist Democratic voters with a Super FHA. Under their plan to assist distressed homeowners, reported by The Politico,
lenders would agree to write down a homeowners existing mortgage balance. In exchange, the FHA would insure a new 30-year, fixed rate loan with an FHA-approved lender and the original mortgage holder could walk away.
There is a common thread to all these government actions. All of them fail to think seriously about how we got here, and how the major political and economic actors contributed to the mess. Like me, you might want some answers to the following questions about the current mortgage mess:
How much of the problem originates with the Federal Reserve System? The Fed is always in fighting mode. Either it is fighting recession, as now, or it is fighting inflation, as it was until the credit crunch started last summer. Wouldnt it be better to leave all this fighting to the armed forces? Isnt it time to have a national conversation about the Fed, given that the dollar is worth about 5 percent of its value when the Fed took charge of the nations monetary policy back in 1913?
How much of the problem originates with the governments many programs to subsidize homeownership? We get to deduct mortgage interest payments on our income tax returns and we have the FHA, Fannie Mae, Ginnie Mae, Freddie Mac all in the business of hosing down the American people with mortgage money. Is this really such a good idea?
What about the high octane use of debt? Unlike Warren Buffet, we dont have to believe that derivatives are financial weapons of mass destruction. But all credit crises involve overleveraged debtors who suddenly find themselves under water and unable to service their debt. It happens time after time. What is going on here?
Can the solution to the current market volatility really be a plodding expansion of government regulatory powers and more rule by the bureaucrats?
Maybe the problem with the financial system is the central role that government plays, especially given its role as the No. 1 debtor. Maybe theres another way.
Last week David Brooks advertised the efforts of a new generation of social entrepreneurs and their philosophy for solving social problems.
The older do-gooders had a certain policy model: government identifies a problem. Really smart people design a program. A cabinet department in a big building administers it.
But the new do-gooders have... a much more decentralized worldview. They dont believe government on its own can be innovative. A thousand different private groups have to try new things. Then we measure to see what works.
We conservatives know where that comes from. It comes from F.A. Hayek, Nobel laureate and conservative god.
There must be a decentralized, Hayekian way to build a financial system that is not based on government debt. But who will lead the way?
Buy his Road to the Middle Class.
When we began first to preach these things, the people appeared as awakened from the sleep of agesthey seemed to see for the first time that they were responsible beings, and that a refusal to use the means appointed was a damning sin.
Finke, Stark, The Churching of America, 1776-1990
In 1911... at least nine million of the 12 million covered by national insurance were already members of voluntary sick pay schemes. A similar proportion were also eligible for medical care.
Green, Reinventing Civil Society
We have met with families in which for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.
E. G. West, Education and the State
Law being too tenuous to rely upon in [Ulster and the Scottish borderlands], people developed patterns of settling differences by personal fighting and family feuds.
Thomas Sowell, Conquests and Cultures
The primary thing to keep in mind about German and Russian thought since
1800 is that it takes for granted that the Cartesian, Lockean or Humean scientific and
philosophical conception of man and nature... has been shown by indisputable evidence to be
F.S.C. Northrop, The Meeting of East and West
Inquiry does not start unless there is a problem... It is the problem and its
characteristics revealed by analysis which guides one first to the relevant facts and then,
once the relevant facts are known, to the relevant hypotheses.
F.S.C. Northrop, The Logic of the Sciences and the Humanities
But I saw a man yesterday who knows a fellow who had it from a chappie
that said that Urquhart had been dipping himself a bit recklessly off the deep end.
Dorothy L. Sayers, Strong Poison
I mean three systems in one: a predominantly market economy; a polity respectful of the rights of the individual to life, liberty, and the pursuit of happiness; and a system of cultural institutions moved by ideals of liberty and justice for all.
In short, three dynamic and converging systems functioning as one: a democratic polity, an economy based on markets and incentives, and a moral-cultural system which is plural and, in the largest sense, liberal.
Michael Novak, The Spirit of Democratic Capitalism
The incentive that impels a man to act is always some uneasiness...
But to make a man act [he must have]
the expectation that purposeful behavior has the power to remove
or at least to alleviate the felt uneasiness.
Ludwig von Mises, Human Action
[In the] higher Christian churches... they saunter through the liturgy like Mohawks along a string of scaffolding who have long since forgotten their danger. If God were to blast such a service to bits, the congregation would be, I believe, genuinely shocked. But in the low churches you expect it every minute.
Annie Dillard, Holy the Firm
When we received Christ, Phil added, all of a sudden we now had a rule book to go by, and when we had problems the preacher was right there to give us the answers.
James M. Ault, Jr., Spirit and Flesh
The recognition and integration of extralegal property rights [in the Homestead Act] was a key element in the United States becoming the most important market economy and producer of capital in the world.
Hernando de Soto, The Mystery of Capital