Regulation Is the Wrong Answer

The Goldwater Institute ^ | April 9, 2008 | Thomas Patterson

[GoldwaterInstitute]

Regulation Is the Wrong Answer : Mortgage market will correct itself without Washington’s help

Thomas C. Patterson, Goldwater Institute Daily Email, April 09, 2008

Since 2001, the number of employees in government regulatory agencies has grown from 172,002 to 244,000. Their funding has increased 44 percent, inflation-adjusted.

As a result, Americans face $30 billion more annually in regulatory costs than they did seven years ago. All told, we pay about $1.1 trillion for regulation and compliance costs, about the same as we pay in federal income taxes.

In spite of its massive costs, regulation has been unable to prevent market cycles in the past or to prevent scandals like Enron. Regardless, Washington’s answer to the downturn in the housing and mortgage markets has been more regulation.

Free markets are by far the most efficient generators of wealth in the history of the planet. But they are by nature chaotic and unpredictable.

Not only are free markets fundamentally unmanageable, but attempts by would-be commanders to control them can be disastrous. That’s when economically foolish behavior becomes the norm.

That is precisely why market corrections should be allowed to proceed. Failed loans should go off the books, investment banks that acted unwisely should suffer the consequences, and housing prices should be allowed to fall so that prudent savers can buy homes.

Predictably, the market is already self-correcting. Derivative contracts and hedge funds today are being structured more conservatively. Balance sheets and equity valuations are being more closely aligned with their underlying assets.

If the politicians don’t act soon, their services may no longer be required. That would be their worst nightmare.

[econjack]

...we pay about $1.1 trillion for regulation and compliance costs...

Each regulation puts money in someone's pocket and therein lies the problem. It can be money directly, or indirectly through control of regulatory agencies and handing out favors. Either way, some politician gets power and/or money and they won't let it go. Politicians think they can do a billion simultaneous equations per second better than a free market can. It is so discouraging...

[ex-Texan]

Politicians think they can do a billion simultaneous equations per second better than a free market can. It is so discouraging . . .

Yuppers. The politicos are all on somebody's payroll. Right now Wall Street is the obnoxious hinge that gets oiled. In a few years a bunch of rich weasels will go to prison. Then the politicians will other special interest groups to support their spendthrift ways.

The Brits have a more 'objective view.' They simply blame U.S. lack of control for the mortgage crisis and all its unintended consequences.

IMF Gives Bleak Warning on Dangers of Global Recession

Excerpt:

World prospects have deteriorated sharply, with the US economy tipping into recession and a one-in-four chance of global recession, as the toll mounts from the “largest financial shock since the Great Depression”, the IMF said yesterday.

In a bleak assessment, the International Monetary Fund said the world was in the grip of a major financial crisis, fuelled by a US housing slump that continues full blast. It drastically cut its forecasts for the United States and other leading economies over this year and next in its latest World Economic Outlook. * * *

Pointing to a series of dangers that could lead to an even worse outcome for the US and Europe, the Fund said there was now a 25 per cent chance of global recession, defined as world output growth falling to 3 per cent or less. * * *

The grim assessment of American prospects points to the weakest showing by the US economy, both this year and next, since the deep recession of 1991, when GDP fell by 0.2 per cent, and challenges the US Federal Reserve’s prediction that the US will rebound strongly next year. * * *

The Brits also discount Helicopter Ben's crystal ball pronouncements. 'I wonder why?,' laughingly . . . Check my FR page to find out . . . If you are so inclined.