Thursday, April 15, 2010

Who'll Regulate the Regulators?

Michael Daley has an instructive piece in this morning's NY Daily News about the importance of Wall Street to the city's economy-and he cautions our good folks in Washington about too heavy handed a regulatory scheme being imposed on our own Golden Goose: "We all get indignant about those unconscionable Wall Street bonuses, and rightfully so, but those bonuses have produced billions in taxes over the years. And those taxes pay for teachers and cops and firefighters."

But, as Daley points out, Wall Streeters make a useful political piƱata: "And by all appearances, Wall Street has learned precious little from the experience. Left on their own, the bankers are sure to lead us once more to the edge of a cliff, maybe next time right over it. They need to be regulated, but in a way that will ultimately benefit them, that will keep them prudently prosperous, guarding against bust without precluding boom. Only politicians get a lot more mileage out of pillorying and punishing Wall Street."

Which is, of course, the goal of the ObamaNation-misdirect so that the fall election cycle won't become Democrats' Armageddon: "Only politicians get a lot more mileage out of pillorying and punishing Wall Street. The Democrats have a new 60-second TV spot in which a Main Street-style voice intones: "2008. Trillions in savings wiped out. Millions of jobs lost. Homes and businesses foreclosed on. Wall Street's risk and greed cost us trillions. The result? The worst recession since the Great Depression." Then comes the warning, "It could all happen again if we don't pass President Obama's plan to reform Wall Street."

But, of course, any beating given to Wall Street would cause hemorrhaging all over the city: "The problem is that if you hit them with punishing taxes and regulations, they might simply depart for another world financial center such as London or Hong Kong. The people left behind will be just like those who made up a considerable majority of the people I saw coming and going from Goldman Sachs. These folks looked more Main Street than Wall Street - office workers and custodians and security guys."

Which gets us right to the crux of the Democrats' scheme-and the idea that the same political class in charge of regulating Fannie and Freddie will watch out for us is, well, simply ludicrous. It was the great Chris Dodd and the loquacious Barney Frank who were asleep at the switch during the subprime mortgage boom; and it is our belief that any new regulatory scheme will-aside from creating an expensive and cumbersome additional bureaucratic structure-be totally ineffective.

The simple fact-as Murray Edelman pointed out over forty years ago-is that the regulators and the regulated will form a symbiotic relationship that will be to their mutual benefit (how much dough has Chuck Schumer culled from the Street in the past 12 years?). But the public certainly won't be seeing the benefits-and another expensive waste of tax dollars will be foisted in the name of looking out for the little guy. As Edelman would say, the words and the symbols will soothe the masses, but the policy will never protect their interests.

Daley concludes his musings with an indirect paean to Mayor Mike's Wall Street advocacy: "As our mayor likes to note, the top 100 tax filers pay 13.2% of the personal income tax revenue the city collects. He will also tell you the top 5,000 pay 38.7% of those taxes.Many of those people are in the financial industry, and if we drive a significant number of them away, we might as well start calling our city Detroit-on-Hudson. Mayor Bloomberg has been making it hard enough to hate the rich. Now it turns out we need them, along with the banks. Like it or not."

Well, the stopped clock chief executive of our city is right about this issue-we just wish that he'd find real Main Street tax and regulatory issues that would promote similar stuck pig squealing. But since in those cases it is the mayor himself doing the sticking, it's unlikely that he'll pick up on the analogy any time soon.

Our view is that we need to beware of the unintended consequences of the red meat legislation that the Dems are promoting. Another $50 billion slush fund that will be used to bail out the co-conspiring bankers and pols one more time if anything bad does happen. We need this like a loch im kopf.