Tuesday editorial
Here’s an advance look at one of the editorials that will appear in Tuesday’s Post-Dispatch and online at STLtoday.com/news/editorials.
MORE REGULATION, PLEASE
In the middle of a grinding credit crunch, Treasury Secretary Henry Paulson on Monday unveiled plans for a massive overhaul of the way the government polices the nation’s financial system.
It’s a thoughtful approach worthy of full debate and discussion, but even Mr. Paulson acknowledges that it will take time - past the expiration of this administration - to carefully consider the plan, much less get it approved by Congress. In the meantime, the so-called blueprint will do very little to dig us out of our present financial mess.
We’re in that mess because lenders and investors made some terrible bets, largely on mortgages to iffy borrowers, but also on other types of shaky loans. All this happened under the noses of the Federal Reserve and the Treasury Department, which failed to pay attention and take action until it was too late to avert a crisis.
On the promising side, Mr. Paulson’s plan - study for which began before the current crunch - would let the Fed snoop more deeply into the books of Wall Street firms to detect what bombs may lurk there and assess risks. That’s only reasonable, since the Fed has pledged more than $50 billion in taxpayer funds to ward off a financial panic that could have investment banks falling like dominoes. It’s the largest federal rescue operation on Wall Street since the Great Depression.
What we really need, however - and fairly soon - are stricter soundness standards for investment banks. We need tougher capital, loss reserve and liquidity requirements. Those things can lower profits, but they also armor firms against the bank-run mentality that nearly took down Bear Stearns.
But Mr. Paulson, who came from Wall Street, appears to oppose such an approach. “I am not suggesting that more regulation is the answer,” he said. He called it “premature” to assume that investment banks should be under Fed supervision permanently or have permanent access to Fed loans.
It’s not premature at all. The nation’s financial system has stared into the abyss, and there’s no forgetting it. The events of the past few weeks show that the nation’s credit system is vulnerable to severe damage based on mistakes made on Wall Street. That puts the entire economy - including the paychecks of ordinary Americans - at risk.
Without a wide-awake regulator with meaningful authority to take action, we’ll see this sort of thing again.
Even if the Fed subsequently closes the emergency lending window it has opened to investment banks, everyone would expect it to open again when the next crisis hits. That alone can lead to more risky behavior.
The long-range plan Mr. Paulson announced on Monday looks well beyond our present dilemma and proposes major structural changes to our regulatory system. It took shape, often haphazardly, between 1913 and the Great Depression, and Mr. Paulson is right to consider a broad overhaul.
For example, an alphabet soup of five federal agencies and dozens of state agencies regulate banks that provide customers with federal deposit insurance. The trick is figuring out how to eliminate wasteful overlapping authority without losing the checks and balances required for effective oversight.
The Treasury secretary would combine all regulators into three agencies. One would regulate depository banks for soundness. A second agency would play cop to lenders and investment houses, enforcing fairness and consumer rights. The third agency would be the Federal Reserve, and it would be charged with protecting the overall financial integrity of the system. It could step in when risky practices put that system in jeopardy.
Mr. Paulson and his team deserve credit for thinking out the box. His long-range regulatory overhaul deserves serious consideration, keeping a special eye on true enforcement authority and provisions for meaningful checks and balances. But we also need tighter standards right now.
Eric Mink was the commentary editor and an oped columnist for the Post-Dispatch from 2003 until January 2009. Before that, he was television critic at the New York Daily News and at the Post-Dispatch. During the 1980s and '90s, he also was a morning show regular on the various St. Louis radio stations that employed J.C. Corcoran. Mink was born in St. Louis in the previous century and hopes subsequent generations aren't too ticked off about it. He is proud to be a member of the University City High School Hall of Fame and makes no apologies for being what is known in the pet trade as "a cat person." 
Mr. Mink,
While I agree generally that government should protect citizens from being defrauded you have failed to make the case that anyone has been cheated. Both lenders and borrowers made errors in judgment. It is wrong for government to take money from anyone to pay for the errors that have been committed. Just as you have no right to demand I pay for your errors, no group of people, no matter how large, may demand of me my life’s work to pay for their collective errors.
I know you will argue that everyone is better off if we all help each other or some other non-sense; however, the duty of government is to dispense justice. The robbery of property from one individual to pay for the errors of another is the very opposite of justice.
Before asking for more regulation you really need to read the Community Reinvestment Act which was passed by Congress a number of years ago. That Act REQUIRED that loans be made to borrowers who were not qualified. That was the Act that created the Sub Prime loans. Now when you reap what seeds you sowed you are now surprised it blew up?
I agree with the first two comments. Government regulations are the problem and NOT the solution. The more regulations that we have will compound the economic problems, and certainly will not solve them.
The Federa Reserve is a private entitiy that is accountable to NOBODY, except itsself. Their past errors convinced me that I should invest in Gold. I did. The economy is doing good for me,
Editors of the PD, it may come as a surprise to you, but you cannot regulate greed and/or stupidity. That is particulary true for government officials at any level. Generally they fit both categories.
It’s laughable that we have entered an era when we can spend ourselves from poverty to wealth.
Back to the drawing boards Editors. Try again.
Why not post a reqest for readers to tell you how to get the economy out of a funk without having one new regulation? ..
Morning, all.
Judging from the comments posted thus far for both Tuesday editorials — and thanks for those — I think a procedural clarification might be helpful. (I’ll post this note as a comment with the other Tuesday editorial as well.):
As always is the case, these editorials present the judgment and opinion of the Post-Dispatch Editorial Board, not the judgment and opinion of any individual member of the Board. That’s why Post-Dispatch editorials, like those at most major newspapers, are not signed or bylined.
My byline appears at the top of the posts only because I happened to be the staff member who handled the posting responsibilities yesterday (and I will today, too). I did not write the editorials, although as a member of the Editorial Board, I participated in the discussions that produced the consensus judgments they express.
So to the extent folks focus comments about editorials on a “you,” it’s worth keeping in mind that it is, in fact, the institutional “you” of the Editorial Board, not an individual “you” of any one person here.
As a retired commercial banker of thirty years let me tell you there is enough regulation of the banking system as we know it. The investment banks are another matter. It’s been common knowledge for years that the SEC couldn”t keep with the rapidly expanding PRODUCTS,ie money making opportunities that smart people can come up with.
In the last 10 years of retirement I would ask myself does no one understand sub prime debt?Can anyone believe that european financial institutions would own slices of mortgage debt on main street america?. Now that the fed has expanded the discount window and expanded its collateral requirements there has to be a review of the regulatory system without destroying what has overall been a good system for years.
If the fed hadn’t kept rates so low, inflating the money supply and if the various regulators had been doing their job wew wouldn’t be in the situation we are now.
Johnh in Comment 3 above makes a fine suggestion (or is it a challenge?):
He invites us to invite ThePlatform readers to post their ideas for getting the economy out of its present funk (which I fear may get a lot funkier, apologies to the late James Brown, before it improves).
Johnh wants to limit this only to ideas that exclude new/additional regulations, but why not just let the brain waves beam wherever they will?
So if you’ve got ways percolating in your head about how to improve the economy — with or without regs — let’s hear ‘em.
Mr. Mink,
Mr. Bailon invited us to involve ourselves in debate with the editors of the PD. I think it is great that he wishes to do that. Would you prefer I address my posts “To the editor?” I would be happy to oblige, however, I have always felt a more personal correspondence develops the issues further.
In response to your request for ways to improve the economy, I do have some. Let me preface this by saying I do not believe it is the duty of government to involve itself in the economy except to prevent the robbery of its citizens by force or fraud. It is only coincidence that a Laissez-faire approach to the economy is also the best in terms of production (and distribution, though I am certain you would disagree).
Government should be concerned with justice, that is, creating a system in which no man need fear another (Jefferson). Government should be restrained from giving anyone, individual, business or other group, any advantage because that advantage, when the force of government is used to achieve it, is cause for every man to fear all others.
That being said here are some ideas:
1. Repeal income taxes, sales taxes and property taxes except to the extent needed to defend the lives, liberties and properties of the citizens of the United States while in the United States.
2. Repeal medicare, medicaid and all other entitlement programs.
If 1 and 2 are too difficult to swallow you could start with
3. Repeal sarbanes-oxley.
4. No further subsidies for financial institutions (insurance, bailouts, etc)
In may, june the stimulus package will start to have a impact but I don’t believe much. Once the excesses are squeezed out of the financial institutions and mortgage debt reaches the level approximating the underlying real estate there is nothing government can do however intended.
Two things have changed in america. The average consumer has realized that they don’t have the financial capacity to service any new debt and they are scared to death.
Yes the politicians will want to do things to further stimulate the economy while still talking during the presidential campaign about bigger government programs which will require more taxes.