Putting the government in charge of financial accounting is like putting the streetcorner wh*re in charge of public morals.
Brace yourself for the onslaught of misguided New Deal II, Sarbanes-Oxley (SarbOx or SOX) II, Resolution Trust Corporation (RTC) II, or Homeland Security II:
- Financial Homeland Security: Treasury Secretary Henry Paulson incredibly considers the New Deal centralization to be too DEcentralized and proposes more centralized government control akin to the Homeland Security centralization that cost hundreds of billions of dollars for little or negative benefit (made things worse). The New York Times even described one aspect of Paulson's plan as a financial "SWAT team." UPDATE 4/13/08: "Federal Reserve staff move into offices of investment banks to monitor activities," The Times Online, Tom Bawden and Dearbail Jordan, 4/4/08.
- Nationalization of banks (Viva Hugo Chavez): The US federal government is researching "force majeure" hostile government takeovers of private companies and has contacted Norway and Sweden about their forced takeover tactics.
- Barack Obama (D-IL) supports centralizations similar to the Bush-Paulson plan. Obama specifically acknowledged his agreement with Bush's Paulson on increased regulation. Obama called for international regulation on a global scale, including the "Basel Committee on Banking Supervision, the International Accounting Standards Board, and the Financial Stability Forum."
- Hillary Clinton (D-NY) does not know what she is talking about when it comes to housing, economics, and finance--whether it is 3am or 3pm.
- John McCain (R-AZ) "will consider any and all proposals" for bailouts in the housing/credit crisis and seems intent on some type of regulation with only the details in question, despite the recent, misleading media surge about a laissez faire (hands-off) approach. UPDATE 4/1/08: McCain economic adviser and former Hewlett-Packard CEO Carly Fiorina confirmed that McCain opposes laissez faire and supports "appropriate reform" to empower government to pick winners and losers in the Great Housing Lottery.
- Chris Dodd (D-CT) and Barney Frank's (D-MA) Dodd-Frank bill to prevent foreclosures (which Bush might join to support) makes the usual mistakes and changes the rules in the middle of the game, creates moral hazard that increases future financial risk and cost, harms new homebuyers, and is probably another gravy-train jobs program for lawyers.
- Europe is planning to follow the United States into the inflationary abyss as the European Union (EU) Central Bank President Jean-Claude Trichet and Great Britain Bank of England Governor Mervyn King signal surrender to the US Fed's loose credit: "We're inching closer to the great global monetary easing," says Joachim Fels, co-chief economist at Morgan Stanley in London. Enjoy Bernanke's race to the bottom. Welcome to Zimbabwe.
- Warren Buffet said that you make money when you buy, not when you sell. Likewise, you prevent foreclosure when you sign (or DON'T sign) the mortgage, not when you verge on default.
- The housing and credit bubbles are government policy (government intervention/activism caused the problem, with the 1990s Bill Clinton administration's pushing of subprime loans to low-income and minority borrowers by altering the anti-redlining 1977 Community Reinvestment Act, the 1990s-present Fed's easy-money monetary policy, the 2003 Office of the Comptroller of the Currency (OCC)'s use of the 1863 National Bank Act to protect and encourage risky loans by overriding and negating state "predatory lending" laws, Alan Greenspan's 2004 endorsement of "alternatives to the traditional, fixed-rate mortgage" (ARMs), Housing and Urban Development (HUD) and other federal agencies' decision by 2006 to ignore the looming, growing subprime problem, Ben Bernanke's 2007 drug-pusher tactics to keep America hooked on loose credit, Bush's "Ownership Society" policies to shoehorn subprime borrowers into home loans including the Bush/HUD/FHA/NAR "National Homeownership Month," Hillary's subprime mortgage connections, Barack Obama's ties to Fannie Mae scandals through his vice-president-(VP)-search-team advisor James A. "Jim" Johnson, the former Fannie Mae chief executive and lobbyist, etc.) so giving the government more powers is foolishly adding more foxes to the chicken coop.
- The greatest financial scandals and swindles are government-related accounting (Social Security, Medicare, Fannie Mae, Pension Benefit Guaranty Corporation (PBGC), breaking the $9 Trillion debt ceiling (legal limit) while the nation yawns) so putting the government in charge of financial accounting is like putting the streetcorner wh*re in charge of public morals.
- Paulson admits that his plan would not have prevented the current crisis and is not intended to address the current crisis, "Some may view these recommendations as a response to the circumstances of today. Yet, that is not how they are intended." Now is simply a convenient time to push an old wish-list of new government powers.
- Mental gymnastics break the back of logic when these plans try to ignore that not helping bad borrowers means not helping the worst problems while helping good borrowers means subsidizing the better-off.
- A bailout without moral hazard is impossible.
- Trying to avoid moral hazard is re-inventing the wheel: The Norwegian nationalization sacked bank staff and left shareholders with nothing, essentially letting poorly run firms first fail without moral hazard--which is exactly what the free market would do anyway without the "help" of nationalization if the government would step aside and compassionately do nothing for once, so nationalization does little more than let the government steal the assets.
One-year anniversary of my warning: Remember the Alamo.