Alternative Credit Crisis Answers

What do Congress and the President need to do to address the Credit Crisis? The answer appears to be extremely complex. However, we do not need to rush to do something in a panic state. On the other hand, we do need to take action quickly. This problem will not solve itself.

At present the Democrats control enough votes in both the House and Senate to pass whatever they want. Why haven't they? Because they need Republican Cover, which they can only get by calling this a bipartisan bill. The Democrats, lead by Nancy Pelosi in the House and Harry Reid in the Senate, must be able to defend their bad judgment which lead to this Credit Crisis by saying "the Republicans agreed to this problem's solution."

It is for this reason that the House Republicans, and John McCain, are insisting on some changes in the original measure. However, there is only so much these Republicans can do. Since the Republicans are the Minority, their power is limited.

The problem is one of CONGRESSIONAL OVER REGULATION . Congress created the problem, Congress can solve it, but NOT with MORE REGULATIONS. The Bowyer Bailout Alternative, by Jerry Bowyer agrees.

Over-regulation brought us to this crisis, not under-regulation. If we get the diagnosis wrong, then the prescription will be wrong too.

Mr. Bowyer presents us with a somewhat convoluted analogy to describe our problem.

Think of the analogy of a 'bail out': someone knocks a hole in a boat and the water rushes in. The crew bails water out of the boat to keep it from sinking. [...] This analogy points to the real problem: the hole! If you patch the hole early, no bailing is needed. If you patch it very late, the whole ship needs to go into dry dock. But the bailing out only makes sense in the context of patching the original problem. The worst thing to do would be to allow the ship to sink to make some kind of populist political point. No, revise that:

The worst thing to do would be to take the left's view and say "too much water in the boat, let's knock more holes into it so the water can get out." [emphasis mine]

Mr. Bowyer's quote is a little awkward, but you get the point. The quicker the original problem (the hole) is fixed the faster the ship becomes seaworthy again. But sometimes in politics the fix to a complex problem, especially one not well understood, is to regulate a solution. And that's because politicians are legislators who believe legislation and regulation will solve any problem.

Barney Frank (D-MA) in the House, and Chris Dodd (D-CT) in the Senate chair the Financial Services Committee and the Banking Committee, respectively, in Congress. They have said there is no hole in the boat, but if there ever should be a hole, we require more holes be made NOW, so the water can drain out. The Democrats answer: "Regulate more holes to ensure safety." And what was a sound boat, now has holes in its hull. They're currently above the water-line, but when the storm comes, the ship will sink.

Place salary ceilings on "every company that benefits in any way whatsoever from the bailout" as Barney Frank said today on CNBC, and you'll get a talent exodus. Give judges the power to obviate existing mortgage contracts with investors around the world - the dollar will plunge. Every one of those proposals is another hole in the boat.

More regulation (holes) from Barney Frank (D-MA). Representative Frank is unwilling to admit we need to patch the current holes. Holes like this ...

Some are talking about putting a hold on the mark to market regulations. That's a start but not enough. Don't suspend mark to market, abolish it. It's part of the whole Sarbox, Spitzer, FAS 157 wave of punitive regulation after Enron. It makes no sense to impose and universalize temporary downturns, especially during panics.

And this ...

Abolish the Bank Holding Company Act. It's a remnant of the 1920s before branch banking. Its only current effect is to keep private equity from buying majority stakes in troubled banks. Goldman's decision yesterday just illustrates the problem. They had to change structure in order to buy up other banks. This is nuts. Get rid of this dinosaur and private equity will start the capital infusions.

And this, GIGANTIC HOLE ...

Abolish the Community Reinvestment Act. Forcing banks to make minority loans is the original sin out of which came the Subprime mortgage industry. Let banks decide where to loan; that's their job. Leave identity politics out of our credit system. [emphasis mine]

The Community Reinvestment Act (CRA) came into being under President Carter (1977) and was Greatly Expanded by President Clinton (1994) to mandate subprime loans. Its provisions work as long as the Housing Market keeps expanding. But when they started to fail last year, the bubble burst with a bang. The provisions of the CRA, are not sound Financial, Fiduciary and Accounting principles. Over Regulation resulting in a lack of prudent policy to gain political advantage with the voters.