Star-Ledger: Rein in Big Business

The NJ Star-Ledger's 10/20/09 editorial, Wall Street: Rein in Big Business, is mostly a rehash of the usual myths about the finacial crisi, with an interesting twist which I called them on. For a related article, click here

Comment by others:

"None of the investment scams could have occurred without the explicit lies made by Stand & Poors, Fitch and Moody's. The overvalued EVERYTHING for payola...lots of loot.

These ratings agencies have gotten off scotfree and still value investment instruments, perhaps honestly now, who knows? Both Bush and Obama have looked the other way, setting the stage for a repeat scam at every tranche level."

My response to this correspondent:

Posted by zemack
October 20, 2009, 5:03PM

Golumba;

The three rating agencies are a government-protected cartel, licensed by the SEC, and essentially protected from competition. In addition, many of their customers are delivered to them by government coercion, in the form of requirements that banks, insurance companies, money market funds, and other financial firms get ratings for their debt securities only from ... you guessed it ... SEC licensed rating companies.

Everywhere one looks, one sees the hand of government intervention behind the financial crisis.


My commentary to the Editorial:

Posted by zemack

October 20, 2009, 8:50PM
The Editors claim that:


“Washington has been steadily stripping the system of any real regulation for the last 25 years..."


Just two paragraphs later, they state that:


“The argument that more government involvement is a step toward socialism ludicrously ignores the fact that we’re already more than half way there…”


The Editors apparently think that nobody pays attention to what they say and that they can get away with so blatant a contradiction. The first statement is utterly false. Apart from some minor tinkering with certain rules, exactly what regulatory powers did government actually relinquish? Glass-Steagall was not a regulatory rule, but a bad law whose repeal had nothing to do with the meltdown, which was caused by the Fed-Fannie/Freddie-FDIC-CRA induced subprime mortgage and housing bubbles. Government regulation actually expanded over the past 25 years, as witness Sarbanes-Oxley, the massive 2002 expansion of government interference that punished the thousands of innocent companies that didn’t cook the books, in retaliation for the few that did (and which were prosecuted under previously existing laws). Accounting rules spawned by Sarbanes-Oxley (so-called “mark-to-market”) were another in a series of government culprits. The repeal of Glass-Steagall was a positive that helped several firms weather the crisis by allowing for diversification.


The second statement is all-too-true. But the Editors don’t draw the obvious conclusion. Instead, they clamor for more government control to rectify the damage caused by government itself. This is the pattern by which totalitarian socialism is being smuggled into a once-free America. This road is being paved by the alleged goal of “protecting” the “consumer”, a privileged class that somehow exists separate and apart from producers and being incapable of entering freely into voluntary contractual agreements with the sellers of financial products. And this “protection” is being financed by the “generosity” of another distinct group called “taxpayers”, who are being forced to fund the steady destruction of their own freedom.

No, Washington is not “Moscow in 1917” and Lenin has not “just pulled into Union Station”. But the direction in which this country is headed is no less ominous. The Washington attacks on the health insurers, major news networks, and “Wall Street” fit a familiar pattern. Every advancing dictatorship seeks to shield its power-grabbing designs by demonizing some group of private citizens as enemies of the state (a term not in use, yet). In Russia, the enemy was the bourgeoisie. In Germany it was the Jews. In America today, it is businessmen, whose legitimate lobbying efforts, a normal activity in a mixed economy, are termed “sabotage”.




What must be “reined in” is government power. We must stop rewarding the mounting failures of the regulatory state with still more regulatory powers. The “failure in the current crisis” of the Federal Reserve, the Federal Trade Commission, and the grossly misnamed Federal Deposit “Insurance” Corp. does not, as the Editors claim, “only strengthen the case for tougher regulation”. These failures argue instead for their abolition, and a systematic return to individual rights, limited rights-protecting republican government, and their corollary free market capitalism, before it is too late.