Doing Something About The Financial Mess

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 Treasury’s 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 Fed’s 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 Department’s 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 administration’s 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 homeowner’s 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. Wouldn’t it be better to leave all this fighting to the armed forces? Isn’t 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 nation’s monetary policy back in 1913?
How much of the problem originates with the government’s 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 don’t 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 there’s 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 don’t 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?

Christopher Chantrill blogs at americanmanifestobook.blogspot.com.

Buy his Road to the Middle Class.

print view

To comment on this article at American Thinker click here.

To email the author, click here.

TAGS

Responsibility

Seeckt: "to make of each individual member of the army a soldier who, in character, capability, and knowledge, is self-reliant, self-confident, dedicated, and joyful in taking responsibility [verantwortungsfreudig] as a man and a soldier."
MacGregor Knox et. al., The dynamics of military revolution, 1300-2050

Living the Virtues

When recurrently the tradition of the virtues is regenerated, it is always in everyday life, it is always through the engagement by plain persons in a variety of practices, including those of making and sustaining families and households, schools, clinics, and local forms of political community.
Alasdair MacIntyre, After Virtue

Moral Imperatives of Modern Culture

These emerge out of long-standing moral notions of freedom, benevolence, and the affirmation of ordinary life... I have been sketching a schematic map... [of] the moral sources [of these notions]... the original theistic grounding for these standards... a naturalism of disengaged reason, which in our day takes scientistic forms, and a third family of views which finds its sources in Romantic expressivism, or in one of the modernist successor visions.
Charles Taylor, Sources of the Self

US Life in 1842

Families helped each other putting up homes and barns. Together, they built churches, schools, and common civic buildings. They collaborated to build roads and bridges. They took pride in being free persons, independent, and self-reliant; but the texture of their lives was cooperative and fraternal.
Michael Novak, The Spirit of Democratic Capitalism

Society and State

For [the left] there is only the state and the individual, nothing in between. No family to rely on, no friend to depend on, no community to call on. No neighbourhood to grow in, no faith to share in, no charities to work in. No-one but the Minister, nowhere but Whitehall, no such thing as society - just them, and their laws, and their rules, and their arrogance.
David Cameron, Conference Speech 2008

Faith and Politics

As far as the Catholic Church is concerned, the principal focus of her interventions in the public arena is the protection and promotion of the dignity of the person, and she is thereby consciously drawing particular attention to principles which are not negotiable... [1.] protection of life in all its stages, from the first moment of conception until natural death; [2.] recognition and promotion of the natural structure of the family... [3.] the protection of the right of parents to educate their children.
Pope Benedict XVI, Speech to European Peoples Party, 2006

Never Trust Experts

No lesson seems to be so deeply inculcated by the experience of life as that you should never trust experts. If you believe doctors, nothing is wholesome: if you believe the theologians, nothing is innocent: if you believe the soldiers, nothing is safe. They all require their strong wine diluted by a very large admixture of insipid common sense.
Lord Salisbury, “Letter to Lord Lytton”

Conservatism's Holy Grail

What distinguishes true Conservatism from the rest, and from the Blair project, is the belief in more personal freedom and more market freedom, along with less state intervention... The true Third Way is the Holy Grail of Tory politics today - compassion and community without compulsion.
Minette Marrin, The Daily Telegraph

Class War

In England there were always two sharply opposed middle classes, the academic middle class and the commercial middle class. In the nineteenth century, the academic middle class won the battle for power and status... Then came the triumph of Margaret Thatcher... The academics lost their power and prestige and... have been gloomy ever since.
Freeman Dyson, “The Scientist as Rebel”

Government Expenditure

The Union publishes an exact return of the amount of its taxes; I can get copies of the budgets of the four and twenty component states; but who can tell me what the citizens spend in the administration of county and township?
Alexis de Tocqueville, Democracy in America

Conservatism

Conservatism is the philosophy of society. Its ethic is fraternity and its characteristic is authority — the non-coercive social persuasion which operates in a family or a community. It says ‘we should...’.
Danny Kruger, On Fraternity

Postmodernism

A writer who says that there are no truths, or that all truth is ’merely relative’, is asking you not to believe him. So don’t.
Roger Scruton, Modern Philosophy

Home

American Manifesto

Chapters

Chappies

roadtothemiddleclass

presented by Christopher Chantrill

Follow @chrischantrill • Contact