More Chicanery

Tim Cavanaugh, fresh off his win at the L.A. Press Club Awards, is on fire today when discussing the idiocy being promoted by Timmy the Tax Cheat and Larry Summers. More regulation will make everything all better! Yeah, not so much. But I'll let Mr. Cavanaugh savage the stupid:
This is horse pucky. The crisis in confidence and trust is the cure, not the disease. Banks are not lending because there are are too many bad risks out there. People aren't getting loans because they can't establish their creditworthiness. And the reason for that isn't some baloney about mass psychology or people needing to be protected from themselves. It's because about 20 percent of Americans have demonstrated that they must never be loaned money on any terms.
I know the people he's discussing. I have seen the failure of risk management in the lending industry up close. Somebody has never pointed out to the banks an 18% loan interest rate is great for cash flow, but it doesn't mean shit if the borrowers don't have the money to pay you back. Or, more accurately, the borrowers will mismanage their financial affairs to the point that you are one of several competing entities trying to get $15K a month out of a guy who only makes $5K a month. It just doesn't work.

Plus, let's be honest about the impact on the financial industry:
it will succeed in regulation's oldest, truest goal of propping up existing players and creating new barriers to entry for anybody who might challenge them. Rest assured that Goldman Sachs and JPMorgan Chase will make noise about how the new liquidity, reserve and reporting requirements are tough, challenging and a step in the right direction. Editorial boards will swoon that "even industry leaders agree" on the need for the new regs. Things will look a little different if you're not either owned by or on a first-name basis with the secretary of the Treasury.
Plus, it will do absolutely nothing to prevent the next meltdown. The law of unintended consequences being what it is, we'll have a failure of the exact same systems brought on in large part by the shiny new regulations designed to prevent a failure. I mean, it's not like we haven't been watching the same scenario play out over the past year.

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