The government’s misguided logic tells them we need more financial regulations in order to ensure that banks don’t end up being too big to fail – in other words, “too-big-to-not-be-given-a-bailout-package.” This means allowing the Federal Reserve Banks of New York and Washington, D.C. to play an even more special role in policy-making, and, in turn, making the central bank more centralized. That makes as much sense as cutting down trees to use less paper.
We have 3,500 regulators in the Securities and Exchange Commission, yet they can’t keep track of the top few financial firms? Face it; the economists who are smart enough to work around the government regulations aren’t going to be working for the SEC. They’ll be working for investment banks and outsmarting the regulators until the government can out-pay Berkshire Hathaway.
Investment banks know the government will continue to bail them out if they follow its rules. If they are forced to play by the rules of the free market with no regulations, there will be no one to bail them out and therefore the banks will take far fewer risks.
Before the Federal Reserve was established, banks handled their crises privately and without money from the taxpayers, and we were fine. Ben Bernanke admitted at a 2002 conference to honor economist Milton Friedman’s 90th birthday that the Federal Reserve caused the Great Depression. Bernanke then added that, thanks to Friedman’s warnings, it will never again cause another financial crisis—this coming from his mouth just six years before the Reserve caused another one. We can’t afford to let a human being have this much economic power. Better 1,000 bad men free than one bad man in power.
With this notion, in addition to the public outcry against the 2008 bailouts, the government came up with a better way to solve our problems in the new financial regulation bill. The Washington Post reported, “The legislation would also empower officials to seize the biggest financial firms if they face collapse.” So instead of giving the companies our money, they’ll replace the bad people in charge with perfect little angels because no one’s more legitimate than someone who’s appointed by President Barack Obama. Sounds to me like bailouts in the form of bodies.
Truthfully, whom does the government plan to hire who isn’t already working at another investment bank? If the government simply let the irresponsible banks fail without these regulations, two things would happen. One, stockholders would lose their money. Too bad. There’s no such thing as a 100 percent guarantee on an investment; it’s the point of investing. Two, other responsible banks would have a chance at becoming more competitive. What gives the government the right to seize a company? God forbid a company promotes Ron Paul’s free market campaign and Don Geithner has to take them over. That’s an abuse of power waiting to happen.
The question I’m asking is this: If we can’t count on the government to balance its own budget, how can we expect it to handle the complex budgets of investment banks? The best way to regulate the market is to not regulate it at all.
Reach Brian at brian.p.anderson@asu.edu
