Where You Stand (Part 2) “The Invisible Hand”

The adventure to determine whether I’m for or against the proposed CFPA continues…
 
You remember the invisible hand, right?  It keeps markets humming along, it keeps consumers and producers in equilibrium with regard to price, supply, demand, and distribution.  The invisible hand is the key to market efficiency.  And a key requirement of the invisible hand is, of course, a free market.  Once there is restriction or regulation of any sort, the invisible hand gets a sort of invisible arthritis.  Staunch believers in the market’s self-regulating ability say “Even if it is broke, don’t fix it.  It will fix itself eventually.”  Sounds good, I like this.  Oh wait—I support the homebuyer tax credit.  Shoot!  That means I’m adding to the arthritis!
 
Okay, to figure out what to think about the CFPA, maybe I should examine my thoughts about other sweeping reforms and the repeal of them?  I’m pretty sure I know what I think about the partial repeal in 1999 of the Glass-Steagall Act under Gramm-Leach-Bliley (which for the first time since 1933 made it legal for a bank holding company to own other financial companies as well). The invisible hand would say this was a step in the right direction – less regulation.  And while I appreciate the arguments on each side, I can’t get in favor of their resulting actions with respect to credit default swaps, collateralized debt obligations and mortgage-backed securities.  Those who argued against repealing those provisions warned that banks would become too big to fail (check); that banks would engage in risky lending and borrowing behavior (check); that the government—that would be you and me—would be called upon to foot the bill (check). Hey, China thinks keeping banking and securities segregated from one another is a good idea, and we’ve sure had borrow a lot of money from them lately!  Oh, wait, they’re Communists though, so…bad example.  I’m pretty sure how I feel about Communism, too.
 
That’s another thing I keep hearing, all this bailing out and backing up and shoring up and tightening down referred to as socialism.  Socialism?  Ewwww!   Then I hear it is more like Fascism.  Mussolini, yuck!  But I thought the point of all of this was in the name of helping restore health in Capitalism?!  I’m going to step away from the “isms” because people tend to use those terms incorrectly and I like to be precise.
 
Here’s some more of the things you should know to understand my plight (continued from yesterday’s post):
 
          4. Not only did my Grandfather predict there would be another Great Depression in my lifetime, he said that the next time it would be worse.
 
I think he may have been right, because in addition to a horrible savings rate we now have an over-dependence on technology, increased urbanization, rapidly increasing globalization and we are in the age of “instant everything.”  So a depression would likely at least FEEL worse to us than it did to them.  Not to mention that somewhere along the way, the invisible handshake got lost.  The market lost the importance of an idea that says that mutually beneficial exchanges require trust, a solid work ethic, and a willingness to punish those who violate these codes.  Instead, what we rewarded was the best scheme, the highest quarterly profit, and not the most long-term or most solid plan.
 
It is safe to say that no one wants another economic depression so…what’s the right answer to avoiding it?  Isn’t that what we’re all looking for here?  Hmmmmm, would the creation of a Consumer Financial Protection Agency help avoid one or help to cause one?  More journeys tomorrow…