Jack Welch & John Bogle On The New Financial Regulators

Stripping away all the bluster and lying premises of the newly-proposed financial regulator scheme, one sees that there is considerably less than meets the eye.

This morning, on CNBC, both John Bogle and Jack Welch trashed the proposals. Bogle, I believe, criticized the idea of centralizing regulation too much. Welch, in my opinion, attacked the plan's most glaring weakness.

It ignores how the current financial mess truly unfolded, conveniently overlooking Congress' own role. Welch explicitly brought this point up, reminding one and all of how Congress fostered the mess by:

-passing CRA legislation mandating that banks lend mortgage money to people who otherwise would have been judged too risky

-pushing Fannie and Freddie to securitize increasing amounts and percentages of subprime mortgages

-foolishly ignoring those GSE's bloating up in a market which would have been better-served by private securitizers with private capital discipline, rather than the implicit, now explicit US government funding guarantee

Further, the FDIC and the Fed have been ostensibly given even more power, when they failed to use what they had to head off the current crisis. Welch and, I believe, Bogle, both noted this.

It's a fact that bank examiners should have halted the subprime and liar loan mortgages several year ago, but failed to do so. They simply failed in that job.

So what is the current administration proposing? To try once more to have the FDIC and Fed attempt to regulate banks. Maybe this time they'll "really" examine banks.

Maybe not.

But it's folly, and, one definition of insanity, to do the same thing over and over, expecting a different result when nothing has changed.

Besides, how much more powerful does the Fed have to be? It's already coerced a bank, BofA, into buying an overpriced broker, Merrill Lynch, then hiding financial problems from shareholders in order to make sure they voted to close the purchase.

It doesn't take a genius to realize that if you don't have a correct, honest analysis of what went wrong, you have little chance, except being tremendously lucky, of fixing the problem so it won't recur.

The unintended consequence of over-regulation by government, whether it be mandating expensive audits for publicly-traded corporations, complying with Sarbanes-Oxley, or expanding the powers of financial regulators, is usually to falsely assure the public that things are safe, when, in fact, fraud and incompetence will still be present.