Friday, June 25, 2010

If ‘Victory’ Looks Like This, Give Us Some Failure

U.S. lawmakers meeting in the wee hours Friday reached a compromise on a bill that will redefine U.S. financial markets and firms for decades, all but guaranteeing the White House its second major domestic policy victory this year.

—The Wall Street Journal, June 25, 2010

So the Wall Street Journal describes the biggest financial overhaul since the Great Depression, agreed to after a 20 hour negotiating “marathon.”

And while we certainly hope the bill will do what its authors claim it will do—i.e. prevent another financial crisis—it’s hard to believe anything coming out of Congress, after an all-nighter, no less, will at the end of the day be more than a bunch of laws that make it tougher to do business here.

Our favorite provision—that mortgage lenders will now have to verify the borrower’s income, by gosh—tells you pretty much everything you need to know about how we got into this mess.

Unfortunately, the very structure of the discussions which led to this bill tells you how successful it will be in curbing financial speculation and future bubbles: probably not very.

That’s because, as in the healthcare “debate”—which was never really a debate, so much as a lecture from on high—the financial services “debate” included not one iota of analysis of how other countries actually accomplished good real-world outcomes during the crisis, as opposed to our very bad real-world outcome.

Did anybody on Capitol Hill bother asking themselves why Canada experienced no financial bubble, no housing crisis and no bank bailouts in the last three years? Anybody?

Of course not: that would be rational. And why would Congress want to be rational when so much money—and we mean campaign money—is at stake.

Still, the outcome here should be no surprise.

For all the talk during the recent healthcare “debate” of what a great job France, or England, or Sweden, or Canada does in providing universal healthcare to its citizens, nobody in Congress seemed to actually analyze those systems, and study how they might, or might not, apply here.

In fact, Congress didn’t even have to look overseas or north of the border to generate an informed view on real-world healthcare reform.

The Massachusetts Commonwealth has been trying to deliver universal healthcare to its 6.5 million patriots over the last three years. Anybody bother asking Massachusetts “How’s that going for you?” to judge how their experience might inform the effort to deliver universal healthcare to all 310 million Americans?

Nope. Instead, we got a healthcare “reform” bill put together by people who know very little about healthcare in the real world…and it came 20 years after such a bill might have helped prevent a problem in the first place.

Even worse, most of the healthcare “reform” particulars have been left up to the bureaucrats to implement, making employers reluctant to commit to new hiring at the very moment our economy needs new jobs the most.

All in all, healthcare “reform” looks a lot like today’s finance “reform,” come to think of it.

And both these pieces of paper, according to the Wall Street Journal, represent “victory.”

If ‘victory’ looks like this, give us some failure, please.

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.


Anonymous said...

Here, here. I feel sick anytime I look at anything related to what legislators are doing. Has the world gone completely insane?

Andrew said...

Actually, the Canadian housing bubble is about to pop. Check out some of the reports David Rosenberg has penned on the topic.

kim caughey said...

Jeff -

Take a listen to the 6/18/10 edition of this american life. Don't know if you know that program but it's an audit documentary program and that week is about government reform. They lay out the budget problems faced by the State of New York. At the end of the segment it becomes clear that a long-time legislator doesn't really understand anything - and I mean any thing - about budgets or fianance. It's appalling. This is who we have elected to make the rules.

Dan said...

The reason these bills are so large, cumbersome, and bloated is that they are pumped full of special interest paybacks and social engineering legislation. Political bribes for votes. It appears that no real attention was given to addressing the true causes of the financial crisis (excessive leverage and defective underwriting standards / products) nor mitigating any future events. This bill will make credit more difficult for businesses and individuals, and thereby easier for government. We are witnessing government at it's wosrt.

Bob said...

And this is a fun quiz, if you haven't seen it yet:

But you are dead-on with your take on health care "reform"

Bob said...

Sorry. Here is the real link to Vancouver Crack Shack or Mansion:
Can't comment on the validity of the home prices or whether they are indeed "crack shacks", but Michael Shedlock linked to this several weeks ago.

Anonymous said...

What a sham. Banks own Congress/Senate. Next crisis in a few years time - more tax payer funds go to solve it. I should have joined a bulge bracket firm than join a hedgefund. Here is have to earn my living on performance.

Jonathan said...

This maybe a victory but for Wall Street. People tend to think that finance reform is a good thing but history has shown us that it just benefits those who are dictating policy in Washington.

If a guy like Lloyd Blankfein is endorsing this legislation, it shows you something!

Hayseed said...

another well written article by the best blogger extant. irony of congress is the more they try to eliminate future problems, the more likely they are to create them. there would have been no housing bubble without govt intervention, starting with fannie and freddie, to the Fed, to barney frank and chris dodd, etc.

RN said...

Must be nice living in the perfect world of your mind.

Out here where the rest of us live, in the real world, I think it's pretty damn impressive that they got something remotely good done on both health care and financial reform in this outrageously partisan nightmare called Washington.

Anonymous said...

Seriously, did anybody expect anything but this result from this President and Congress?

The voters got what they deserved.

Jeff Matthews said...

RN, who claims to live in "the real world," applauds that "they got something remotely done."

Healthcare "reform" did not, to our eyes, reform anything in the real world. Ask your doctor, your health insurer, your local small businesses.

And finance "reform" didn't deal with too big to fail, the ratings agencies, and capital ratios, among much else.

How that helps in "the real world" is hard to see.

As for "getting something done" in that snake pit called Washington DC, why, you can get anything done in Washington if you bribe the right Senator.

Just ask Ben Nelson.


John said...

To the extent our governments, courts, bill of rights and constitution works, why does it ? Cause we believe in it , thats why. To the extent Wall Street works, why does it? Once again, we believe in it, thats why. I have a hard time giving passing grades to any reforms these two most powerful institutions might produce. And i'm not alone. The great history writers , historians got to be shocked at what must cross thier minds.

To those in authority, you have failed now just go away

PhillipCharles said...

Jeff, I think, bar none, your blog is the most informative and enjoyable read in the interspace when you comment on things related to macroeconomics, stocks, company performance and analyst (mis)behavior. Your Bill O'Reilly-like rants about the president and Congress are not so.

Anonymous said...

To quote Mark Twain: "suppose you were an idiot. And suppose you were a Member of Congress. But I repeat myself."

Anonymous said...

Jeff- Thanks for the fine illustration of our dysfunctional system. I have another straight from the American Medical Association Annual mtg in June. Seems the govt decided to move the age for women to get an annual mammogram from 40 to 50 under numerous governmental programs. The advisory group that recommended this had no oncologists or radiologists as experts on the board. And in fact over 40% of women who develop breast cancer are found to have pre-cancerous or cancerous tumours in their 40s. Essentially the govt has condemned a group of women to die prematurely simply to save a few bucks. Despicable.

Anonymous said...

CB Richard Ellis.

Richard Urmston