Obama and Barney Frank Should Look in the Mirror,
Not Point a Finger at Wall Street
By Benjamin Pacini
•
Thursday, October 29, 2009 3:53 pm
The Obama administration’s condescending tone to the economy’s headquarters—Wall Street—is frustrating. Not only is it disrespectful—coming from those with little experience in the private sector—but it also implicitly says that Wall Street, and not government policy, was responsible for the great recession.
Those who are familiar with the situation know that the rhetoric is mostly a PR ploy, but it’s still infuriating. Were the rhetoric to remain just rhetoric, then Wall Street would bear it patiently. No such luck.
As it happens, populism isn’t just fueling anger at Lehman; it’s beginning to sponsor legislation.
The administration is now moving forward with a leviathan financial regulatory package, as Barney Frank pushes in the same direction from Congress. These regulations include, at least, further executive pay decisions coming from the administration (a la Kenneth Feinberg) a new consumer protection agency, and expanded powers of the Federal Reserve to explore systemic risk and overleveraging practices.
Of the myriad problems with such regulation, let’s focus on just a few:
First, systems that allow government to make decisions on executive compensation are taking giant leaps toward socialism. Currently, pay decisions are only being made for recipients of TARP funds, but there is no guarantee that the government will not broaden its powers at some point. Making decisions only about those receiving TARP funds is the camel’s nose in the tent.
Second, there is no evidence that government regulation fixes the problems that it means to. For instance, Sarbanes-Oxley did little to prevent the current financial fiasco. Reactionary legislation may be popular, but it has yet to prove effective.
Third, if the administration—or, more broadly, the government—wants to start pointing fingers for the financial crisis, it would do well to start by looking in the mirror. The government’s fingers are all over the crime scene—they created the system of bad incentives that allowed people to buy bad loans, sell them to Fannie and Freddie, and get away with a triple-A rating without a problem.
Fourth, any consumer protection agency makes the government responsible for what consumers buy, instead of the consumer. The principle of the free market is ‘caveat emptor’—let the buyer beware; the people that should be responsible for what they buy are the buyers. Taking that responsibility and giving it to the government is a philosophical shift that is striking and worrisome.
Finally, listening to populist anger is never a good basis for policy-making. Rewarding peoples’ anger at executives does nothing to help them get their jobs back. In fact, it should do little to pacify their anger, since they are angry about the jobs they’ve lost—with executive pay as a handy scapegoat. If there are executive pay structures that favor risk taking, those should be evaluated by the stockholders, not by government fiat.
Comments (1)
Post Your Comment
Completely agree. I'm tired of seeing Mr. Obama shaking h is finger at US citizens as though we're naughty little children. I"ve long thought it very un-presidential of him to single out individual citizens or a sector of society for ridicule and blame, and I'm very concerned about the nationalizaation of our auto industry, healthcare system, and possibly financial markets. Mr. Obama obviously doesn't like this country the way it is, and I wish he'd just move to a country that he likes rather than trying to change the greatest democratic and capitalistic nation in the world to another socialist nation. But what scares me the most, is that yesterday I went to the Holocaust Museum, and in the Deception Room, dealing with Nazi propaganda, I saw striking parallels between Hitler's and Obama's techniques... Use a crisis to expand power and control ( how else would we justify the government setting private industry pay structures and nationalizing the auto industry and health care), use new technology to muster a grass roots support, find a scapegoat (jews then, Wall Street and wealthy people now), protect us from the enemy without and within, campaign on a promise for "Change" without specifying any particulars (yes- that's exactly the promise Hitler campaigned on)..it goes on and on. We all looked at the Holocaust and said "The world will never let this happen again." Yet, in Germany, people were caught up in the fervor of the moment and didn't see what was happening. I'm terribly afraid that the same thing is happening here and we're too blind to see it.
>> DivaMom November 1, 2009 10:30 am
Add a Comment