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January 29, 2008
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July 9, 2006
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Trivia Tidbit Of The Day: Part 482 - The Perils Of Regulation.
The Misplaced Urge To "Do Something" About the Mortgage Situation-
In the wake of Enron and Worldcom several years ago, there was a rush to "do something" about corporate accounting practices. In came Sarbanes-Oxley (SARBOX or SOX, to many), which overreached and harmed the American economy.
Well, today, in the wake of this subprime mortgage crisis/meltdown/correction/whatever-you-want-to-call-it, the impulse is to regulate, regulate, and regulate some more, regardless of the actual scope of this issue:
Political pressures are mounting for measures to ease the plight of homeowners who are having difficulty paying off their mortgages. There are fewer of these folks than the press leads you to believe. Ninety-two percent of homeowners are paying their mortgages on time; only 2 percent of mortgages are in foreclosure. Subprime borrowers facing higher, re-set interest rates account for only 6 percent of all mortgages, but 40 percent of foreclosures. So much for economic facts.
Both Hillary Clinton and Barack Obama seek major bailout plans of tens of billions of dollars, plus mountains of 1930s-era regulation, which is probably why they both reacted so knee-jerkedly and negatively to John McCain's comment that "it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers."
What is unfortunate is that there is a misguided guiding notion in this debate that there is little or no regulation in this industry, or that the Bush administration has been zealously peeling away important protections in some deregulatory right-wing jihad.
The truth is that President Bush has pushed to limit new regulations and even deregulate in many areas, but ultimately under his administration, we've seen a substantial net addition of regulation:
...appropriations for federal regulatory agencies have increased during the Bush years from $27 billion in FY 2001 to $44.9 billion in FY 2007—a 44 percent increase in inflation-adjusted dollars. The total staffing of regulatory agencies went up nearly as much, from 172,000 employees to over 244,000— a 41 percent increase.
The impetus to "do something" in this election year will be overwhelming. Likely, we'll see another overreaction that further harms the economy in the long run, although if there is political gridlock now (which is entirely possible), it could fall into the lap of the next president.
It's hard to imagine Republicans taking back Congress this year; the Senate may only move one way or the other (likely the other) by 2-3 seats, and it's likely that all of the Republican retirements in bluish-purple districts will cancel out any Republican gains in conservative districts now represented by vulnerable Democrats who won by narrow margins in 2006. Far-left Barack Obama (or Hillary Clinton, for that matter) in the White House, matched with Nancy Pelosi's House of Representatives and a near-supermajority for Harry Reid in the Senate would certainly break the potential gridlock on this issue. The results could be staggeringly harmful to America.
Previous Trivia Tidbit: Energy Intensity.
Posted by Will Franklin · 1 April 2008 11:58 AM