Sun Blogs: Left, Right or Wrong?
Main Street vs. Wall Street: No Such Thing
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Congress was on a roll this week. On April 1st the House Select Committee on Energy Independence and Global Warming heard testimony from top oil company executives concerning tax incentives for oil companies. On April 3rd, financial industry regulators were called upon by the Senate Banking Committee to justify the Bear Stearns rescue. It is true that Congress has oversight power, but did Congress gain anything from telling oil executives for the zillionth time that profits and oil are bad? Or did Congress help to stabilize markets by hearing apocalyptic stories about what a Bear Stearns failure could cause? The U.S. government, and Congress more specifically, would serve its constituents better by allowing the economy to work itself out rather than holding hearings that produce nothing except for C-SPAN footage.
Politicians, most notably the presidential candidates, have been asking, “If Wall Street gets bailed out, why can’t Main Street?” This is a good line that gets crowds riled up, but the notion that there is a great divide between Wall Street and Main Street is increasingly unfounded. The Investment Company Institute (ICI), a group that publishes research about the financial industry, found that in 2007 about 44 percent of households were invested in mutual funds, representing 89.6 million investors. More significant than this statistic, however, is that approximately every three in five of these households have incomes between $25,000 and $99,000. It is no longer only the wealthy who invest. The ICI also reported that the number of U.S. households invested in funds has increased every year since 2004. Of course, this may change due to market volatility. Nonetheless, these numbers represent a narrowing gap between Wall Street and Main Street.
Government proposals to fix the problems with housing and the broader economy are abundant, but misguided. The only true way for the housing market to rebound is for home prices to be low enough and for the risk-reward ratio to be appropriate, so as to attract buyers and investors. Some efforts by the government, such as reducing the capital requirements of Fannie Mae and Freddie Mac help, but ultimately the market must correct itself. The uproar about the economy has gotten politicians in a frenzy. Yes, the situation is bad and it will take some time and pain for markets to rebound. However, quests to find a culprit for the current problems, in the form of oil executives or Wall Street executives, will not solve anything.
If politicians feel a need to decide how the marketplace should be fixed, they should stop telling oil executives that prices are high and oil is bad. Many mutual funds and retirement funds that ordinary people rely on invest in oil companies. Politicians should also stop blaming financial market participants for taking part in the evils of securitization and risk spreading, because these are what ultimately lead to efficiency. Government’s role should be to ensure that there is as much information as possible concerning the financial markets and that this information is easily accessible. Holding hearing after hearing will not do much, other than give the mere appearance that the government knows what it is doing
This column represents
This column represents nothing other than a classic spinning of the facts to fit into a convenient framework that serves to prove pre-determined conclusion. First, you treat congressional hearings and solutions as mutually exclusive. How is that so? I would join you in believing that they are most often nothing but sessions for public grandstanding, but what does it at all have anything to do with solving a problem? The two examples that you provided were both investigative hearings, not legislative hearings. They were not centered around reviewing proposed action or legislation, but merely looking into specific events. But, to also believe that there is no role (or however limited of one you would prescribe) for the government in seeking a solution to existing problems is also misguided. One of the roles that government can play is not by bailing out instigators of the problem, but by making sure that other innocent bystanders don't get caught up in it. For example, many people with a good credit history can't get home, auto, or other loans because banks are too afraid to grant them. Or how about the fact that many honest and hardworking people are seeing their home values depreciate rapidly not because of anything that they did, but because people on their block and throughout their neighborhood entered into unrealistic loan structures that they couldn't afford and are now having their properties foreclosed on. There certainly is a role that the government can play in helping to address these issues. Two proposals recently advanced include using the federal government via agencies like the FHA to help guarantee loans (a measure that even laissez-faire private industry enthusiastically endorses) and granting tax breaks to people who buy foreclosed properties (a measure co-sponsored by a conservative republican who is definitely of your ideological liking).
To rail against the excesses of government action and regulation is certainly valid, but to approach any situation with the foregone conclusion that leaving things to settle on their own would be the most efficient solution to a problem is certainly misguided. A true conservative worried about containing these excesses would do well to focus on policy, not just the process like you have spent your time doing. Next time, maybe we can hear what you actually think about proposals like these and how you could apply your minimalist philosophy to solving our problems.