So, Treasury Secretary Timothy F. Geithner and the Obama Administration have now made a proposal for financial regulatory reform. Clearly, such a proposal was very much needed. But the proposal that the U.S. Treasury has now presented is sorely off target. It is neither comprehensive enough, nor does it address the core problems that everyone on Wall Street knows exist. It merely tinkers on the margins.
Until the fundamental problems are addressed, all we have been given is a fig leaf. This is dangerous as it has the potential of lulling us into a false sense of complacency. We have been here before with smaller crisis (such as with the Long Term Capital fiasco) and nothing was learned. Let’s not repeat our mistakes.
One of the tragedies of the financial storm that reached major hurricane proportions in September of 2008 is the fact that it has been very poorly explained to the average citizen. A tremendous amount has been written about it in the past several months, much of it highly technical or politically charged, but little has been truly communicated. Washington in particular has done an unusually poor job in explaining the problem even as they have appropriated trillions of dollars to the various recovery packages.
The result has been a backlash of anger and a sharp drop of consumer confidence that has certainly made the economic pull back that much worse. The country is thus parched for good information on what is happening and why. As true as this is here at home, it is just as true abroad. The crisis is being fed by the uncertainty of what lies ahead in terms of regulatory structures, tax rates, and regulations not to mention the general macro-economic conditions we will face.
There is no denying the gravity of the current situation. The financial crisis is real, it is global, it is serious and it is growing. With the cream of the nation’s financial institutions such as AIG, Merrill Lynch, Lehman Brothers, Wachovia, Citibank, Fannie Mae, Freddie Mac and others in various stages of collapse, it is an understatement to say that this is the worse financial crisis in the past seventy years. Day by day, the economic panic is growing and is digging deeper wounds into Main Street. We tend to think of this as a financial crisis but the Main Street economy is already in worse shape than the financial markets.
A Commentary on “No Government, No Markets”
The appropriate role of government should be to provide the proper “enabling environment”. Without this the private sector can not properly function. Yes a market can exist without a government. But do you really want to go back to bartering? A primitive economy can function without government, but in order to run a sophisticated, global economy a proper enabling environment is essential. Other active markets also exist outside of the auspices of societal protections, but they are usually associated with illegal activities such as the drug trade, prostitution, gambling, etc. Caveat Emptor - “Let the buyer beware” is very much in order.