"He will put the sheep on his right and the goats on his left."
Matthew 25:33

Monday, September 14, 2009

Obama - Trust me

Fresh from his travels promoting increased government regulation of doctors, hospitals, insurance and drug companies, Mr. Obama visited Wall Street today to suggest that the same government that has given us trillion dollar deficits, and a TARP program without good accounting wants us to embrace a bigger role for Washington bureaucrats on Wall Street.

It is hard to take this seriously. The panic of 2008 was caused by the moral hazard created when the US Government guaranteed so much debt, and then turned on the spigot at the Fed to pump money into the economy. The feds also encouraged banks to loan money to people who were not likely to repay them, encouraged Fannie Mae & friends to buy the debt, and guaranteed everyone in the chain of responsibility. Is it any wonder, with so many US government guarantees afoot that profit seeking Wall Street types would take "risks"?

The reason we avoid risk is - and should be - because sometimes risks become losses. This is how a free market works, and is as it should be.

Free citizens take responsibility for their debts, their investments and their losses. They expect to be able to keep their gains. They also expect to be left alone, as adults, to make their own investment decisions.

Regulation in essence simply prohibits certain risk-taking. In theory, we regulate away those activities we have decided are "too risky", in the hope that everything else can therefore be "safe". The reality is that people take risks to achieve gains. Losses and gains are two sides of the same coin. Guarantees encourage risk taking. This is as true for mortgages as it is for high finance and derivatives. No amount of oversight or regulation will change this basic principle.

How much would you bet in Vegas if you were guaranteed not to lose, but could keep your winnings?

If Wall Street were regulated to the point that it is truly "safe", it could not be profitable, and would be destroyed.

The regulation being proposed by Mr. Obama is little more than a heavy handed attempt to systematically select winners and losers. There is no doubt in my mind that politicians will start by favoring "green" activities and "socially responsible" investments, and end up injecting raw politics into the fabric of the market.

This is a direct assault on the free market and should be vigorously opposed.

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