A Fine Madness in the D.C. Air; Our Financial 'Remedies' Are Apt to Deepen Our Long-Term Woes
Byline: Tony Blankley, SPECIAL TO THE WASHINGTON TIMES
To borrow Niall Ferguson's metaphor - if finance is an evolutionary process, then regulation is its intelligent design - a cognate of faith, not science.
Or, to take the observation of former Federal Reserve Gov. Frederic S. Mishkin that the financial system [is] the brain of the economy, then, I would suggest, heavy regulation is its lobotomy: While it removes the emotional highs and lows, it also dulls the perception, facility and adroitness. (Disclosure, In keeping with my long-held public view: I give professional advice to financial institutions seeking low regulation and taxation.)
A century ago, medical science had faith in lobotomies. Today, it would seem Washington political science has faith in new financial regulation.
Medical science began to gain wisdom when it learned what previously unrealized damage it caused when it lobotomized a human brain. We must hope the experts today who are drafting new regulations by which they would impair our financial system may soon gain wisdom by recognizing how little they understand the effects of these new regulations on our economy's future health.
However, the current financial regulatory efforts in Washington may not even deserve the honor of being compared to intelligent design or a lobotomy. At least with those two processes, each has the intellectual dignity of an internal logic (even if those logics do not accurately describe the reality they attempt to explain and manipulate).
Rather, the current likely financial regulatory efforts have an almost random nature to them as the legislative log-rolling is collecting unrelated and sometimes inconsistent ideas that eventually will be called, I assume, the Frank/Dodd Comprehensive and Rationalized National Financial Redemption Act of 2009.
The final bill will be the compilation of the results of various political battles being fought among the president; his various White House economic and political advisers; the Treasury; various powerful committee and subcommittee chairmen in the House versus their equivalents in the Senate; the successful interventions of various interests; the institutional partial victories that will be gained in the current battles among the half-dozen or so existing, overlapping financial regulatory agencies; plus whatever the whimsical effects will be of the backbenchers, the states, the commentators, the media and, of course, the public.
Even if the 10 smartest financial regulation experts in the world got in a room and wrote an internally consistent set of regulations, if history is any guide, it would not be likely to anticipate, avoid or mitigate whatever the next financial crisis would be. …