- The Washington Times - Monday, April 12, 2010


At the same time the Obama administration and congressional Democrats dismiss Americans’ anger over health care reform as uninformed rants and ravings, they are counting on similar anger to muscle a comprehensive financial “reform” bill through Congress this year.

Last summer, Democrats tried to overcome strong public resistance to health care reform by vilifying the insurance industry. It didn’t work, but they passed the bill anyway. Lucky for them, they don’t need to muster bank vilification. An April Gallup poll showed that Americans’ confidence in the banking industry has reached new lows, hovering around 20 percent. This reflects the popular narrative since 2008 that we, the taxpayers, bailed out greedy bankers who cost our neighbors and us our homes and our jobs. So we need more regulation, and punishment, to ensure this never happens again.

The Democrats are counting on this narrative, and on Republican fear of an angry electorate, to gain support for their next scheme to “save America.” If they succeed, the result will be another multi-thousand-page bill that restructures another huge sector of our economy, adding rules, regulations and bureaucracies. Every step closer to a supposed government guarantee of financial safety is a step away from personal responsibility and choice. That includes the responsibility to make wise financial decisions, to not sign contracts we don’t understand, and to not buy more than we can afford.

It is a fact that many banks were reckless, put the financial system at risk and contributed to our economic agony. So we are angry, with good reason. But anger also blinds us to some facts. Like the fact that banks are paying the taxpayer back, with interest and fees. Current estimates are that the Troubled Asset Relief Program’s (TARP) final cost will not be the original $700 billion authorized, but about $100 billion. And that cost primarily will be unpaid GM and Chrysler loans, not unpaid bank loans. Or the fact that two of the main crisis culprits, Freddie Mac and Fannie Mae, are receiving more, not less, government money and neither is “reformed” in the House or Senate financial reform bills. And the fact that the current proposals don’t streamline or modernize the crazy quilt of financial regulators, they add to it. Financial regulators are well-intentioned, but they will always be one step behind financial innovation and the firms they oversee. The easiest way for the government to guarantee financial safety is by stifling innovation. We don’t want that in medicine or technology; why would we want it in finance?

President Obama’s ambitions for financial reform are no less than those for health reform. He wants “a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.”

Didn’t the health care debate prove that many Americans are mighty suspicious when politicians link “sweeping” and “overhaul” in a legislative sentence? We know a lot about health care because we all have it - good or bad. Even so, most of us don’t go to the doctor every day.

But we spend money every day. We think about earning money, every day and night. We rely on the financial system every day, but we didn’t really understand how the system worked before the crisis. Chances are we don’t know much more now. When it works, we don’t pay attention. When it doesn’t, we get mad and look for someone to blame.

There will be unintended consequences in financial transformation, just as we are already seeing with health care overhaul. They want to protect us with a consumer financial protection agency; that’s a soothing name for a government financial nanny. We don’t much like the idea of the government coming between us and our doctors. Do we want the government coming between us and our money?

They say they will dismantle the monstrous, “too big to fail” banks. But the trouble in 2008 wasn’t size as much as it was interconnectedness - a fancy word for the trillions of dollars of daily overlapping, simultaneous Wall Street and Main Street transactions. We had (and still have) a long chain of interlocking transactions and no way to re-connect the chain when a link breaks, as it did when Lehman Brothers failed.

Rather than let our anger at the banks’ misdeeds convince us that there is a magical fix that can guarantee reward without risk, we should expect Congress to fix what was broken: the lack of an orderly wind-down procedure that doesn’t rely on taxpayer money to keep the financial chain stronger than its weakest link. We also should expect banks, their directors, credit-rating agencies and regulators to do their job: adequately assess, protect against and disclose risk and monitor and ensure sufficient capital and liquidity. The price of failure should be failure, just as it is for the rest of us. That doesn’t require more Rube Goldberg regulatory contraptions layered on top of the ones we already have. It requires demanding, at the very least, that the ones we already have work.

The Democrats are manipulating our anger and losses to justify a bill that will, in the end, be more about politics than protection. The raucous health care debate proved that we are not a pitchfork mob, but regular people who want not more, but more effective, government. It will be a mistake to view financial reform differently.

Stacy Carlson was speechwriter for former Treasury Secretary Henry Paulson and is author of the new book “You, Me and the U.S. Economy” (Rosetta Books, 2010).

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