Experts warn of new easy-money hazard

Experts warn of new easy-money hazard

chris coxCOSTA MESA — Federal regulators are repeating the same easy-money mistakes that led to the Great Recession. So warned five housing and banking experts today at a Breakfast Panel discussion before local business and community leaders at the Westin South Coast Plaza. The event was sponsored by the Forum for Corporate Directors and the Pacific Research Institute,’s parent think tank.

The panel was moderated by FCD Chair Chris Cox, a former chairman of the Security and Exchange Commission and former longtime U.S. congressman from Orange County. Cox said the Nov. 4 election “will have an impact on everything, from health care to financial regulation.”

He pointed to the 2010 Dodd-Frank financial reform, which passed without a single Republican vote in the Senate or House. Although the bill was supposed to make another financial crash less likely, instead it imposed 2,379 new pages of regulations on banks and other businesses – yet just yesterday spurred the relaxation of housing lending.

The spotlight passed to Daniel Gallagher, one of two members of the U.S. Securities and Exchange Commission who yesterday objected to the new relaxation. “Three U.S. agencies signed off on relaxed mortgage-lending rules Wednesday, helping complete a long-stalled provision of the 2010 Dodd-Frank financial law,” the Wall Street Journal reported this morning. “Two Republican SEC commissioners, Daniel Gallagher and Michael Piwowar, objected to the rules.” The three approving agencies were the Federal Reserve Board, the Securities and Exchange Commission and the Department of Housing and Urban Development.

The paper quoted Gallagher, “Today’s rule-making takes the untenable housing policy that injected irrational exuberance into mortgage lending and, as a result, caused a catastrophic financial crisis and chisels that failed policy into the stone tablets of the code of federal regulations.”

GallagherAt the event in Costa Mesa, Gallagher said that, when reforms were proposed in 2011, a 20 percent down payment was going to be required for loans. But yesterday’s action dropped that to zero percent. “Here was a chance to make right what was wrong in the sub-prime bubble” of a decade ago, he said, when a similar easy-money policy first hit the housing market, then cascaded through the capital markets.

Gallagher also said the Dodd-Frank bill made the mistake of regulating the capital markets, which raise investment money, the same as banks. Which means bank regulators will be in charge of investments. The problem, Gallagher said, is that “bankers don’t understand other types of regulation.”

Fatal Conceit

Dodd-Frank’s deficiencies also were highlighted by Paul Atkins, CEO of Patomak Global Partners and a former SEC member. He referred to “The Fatal Conceit: The Errors of Socialism,” the final book of Nobel economics laureate Friedrich Hayek.

For Hayek, the “conceit” was that a group of really smart people could run millions of people’s lives better than they can themselves. Dodd-Frank’s fatal conceit, Atkins said, was to “get all the best people in Washington together and make the capital markets stable. But they’re inherently unstable. That’s the underlying falsity of the Financial Stability Oversight Council,” one of the new bureaucracies Dodd-Frank created.

atkinsAtkins was seconded by Brian Cartwright, a senior advisor at Potomak and former general counsel at the SEC. “The powers of the FSOC are broadly and vaguely enumerated,” he said. He pointed back to 50 years ago, when banks were the primary investment vehicle in America. By contrast, today “80 percent of financing comes from capital markets, not banks. There is a tension between traditional banking and capital markets, and it’s not just the U.S., it’s global.”

He said banking regulation was “fairly good,” and has to be because banks “leverage” deposits – meaning leading out money – at 10 times deposits. So stiffer regulation is needed to make sure the deposits are lent out responsibly.

By contrast, capital market leveraging is much smaller. “The notion you would impose bank regulation on this is pretty wild stuff,” he cautioned. “I’m hoping this won’t happen.”

Rep. Ed Royce

“This is worse than the Fatal Conceit,” charged Rep. Ed Royce, R-Calif., the senior member of the House Committee on Financial Services and the chairman of the Committee on Foreign Affairs. “It’s not just a bank-centric model of regulation, it’s more like a utility.”

By that, he meant government was allowing banks to gain a certain profit for a highly regulated service, such as electricity or water. But that means, “You’re not allowing bankers to be bankers. And you’re putting such additional costs on local community banks, you’re allowing them to be gobbled up” by the big banks that more easily can absorb regulatory costs.

Royce said now is the time for reforming the Dodd-Frank reform because “my Democratic colleagues are getting skittish about waiting for the economic recovery.” His analysis of the economic situation was confirmed a couple hours later at the latest Cal State Fullerton Center for Economic Analysis forecast. “Mediocre growth seems to be the new norm,” said director Anil Puri, as reported in the Orange County Register.

Royce continued that the over-regulation of Dodd-Frank was “seeping out into the rest of the capitalist system,” retarding growth.

Royce said some action could come in the lame-duck session of Congress after the Nov. 4 election. But if Republicans take over the Senate, the real action would come next year. President Obama could veto any potential straightening out of the Dodd-Frank regulations. But if some Democrats join with the potential Republican majority to comprise 2/3 of both houses, “presidents tend to take a second look at such legislation.”


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  1. LetitCollapse
    LetitCollapse 23 October, 2014, 23:33

    It’s sacrilegious for Chris Cox to moderate a forum that discusses stability in the financial markets! He was the SEC chair in 2008. The guy was asleep at the wheel as Wall Street burned in 2008! Anybody who paid attention to the details of the meltdown KNOWS that Chris Cox was one of the reasons for the meltdown. He was named as one of the 25 people to blame for the financial crisis! God almighty. This would be like having Cardinal Roger Mahoney moderate a discussion panel on how to detect and keep pedophiles away from little children! Why do people tolerate this crap and give failures a soapbox? It was reported that SEC staffers under Cox were surfing porn on their gov computers while the economy crashed!!! LOL!!! Why do you listen to this guy? Would everybody PLEASE call these jackasses out instead of treating them like royalty??? 🙁

    Reply this comment
    • John Seiler
      John Seiler Author 24 October, 2014, 15:25

      We report, you decide if you want to decide about deciding.

      Reply this comment
    • Donkey
      Donkey 24 October, 2014, 16:29

      The FBI let all these regulatory feeders know of the corruption that was going on in the home mortgage industry in 2004, but all their agents were being sent to fight the war on terror, so every lazy Chris Cox yahoo just sat around doing nothing at all, which is pretty close to how the RAGWUS works also. 🙂

      Reply this comment
      • LetitCollapse
        LetitCollapse 24 October, 2014, 18:19

        Chris Cox should have known that Bear Stearns was underwater and ripe for a meltdown. Bear Stearns was the lit fuse that exploded the economy. The inspector general said that the SEC dropped the ball on Bear Stearns and should have known it was ready to collapse. It was Cox’s job to know the internal financial condition of these huge financial institutions to protect our economy. He was asleep at the wheel and so was his agency. What a farce. IMO Cox should have been indicted, along with many of the Wall Street fat cats. But not even ONE was prosecuted or went to jail. That REALLY opened up my eyes to the power of the ruling class. Two sets of laws. One for us. One for them. I lost total confidence in our regulatory agencies after what happened in 2008. All of them are worthless. We spent billions to fund the SEC and the incompetent fools are worse than a bunch of Keystone Cops! 🙁

        Reply this comment
        • LetitCollapse
          LetitCollapse 27 October, 2014, 12:19

          Oh, btw, whenever USC plays UCLA I always cheer on the Bruins! The arrogance of USC turns me off. It pleasures me when they get beat – like against Utah. It’s a rich boy and girl school. The grads I’ve met think their stuff don’t stink. Coach Sharkisian must be crapping peanut shells about now. His 1st year is turning into a disaster. Ranked 4th in the Pac12 south 5-3 overall, 4-2 in the conference. Can’t wait until UCLA plays them on Nov 22. It will be a classic one fer shure. 🙂

          Reply this comment
      • LetitCollapse
        LetitCollapse 25 October, 2014, 21:16

        Donkey, the Bruins barely made it past Colorado. Did you watch the game? They finally won in the 2nd overtime. UCLA started off super strong this season. I thought they would be in the conference playoffs for sure. There’s still an outside chance – but if they continue to play like they have in the last couple games. I think Coach needs to dump that defensive coordinator. The team has talent but aren’t playing up to their abilities. And that always indicates a coaching problem. I see their last 4 games are with #15 Arizona, Washington, #20 USC – then closing out with Stanford! OMG! Good luck! 😉

        Reply this comment
      • LetitCollapse
        LetitCollapse 25 October, 2014, 23:52

        Wow. #19 Utah picked off #20 USC in the final seconds over in Mormon country. Awesome game. Utah’s got a fine team. They might give the Ducks a little trouble in 2 weeks. But next week the Ducks have to get past Stanford who upset them 2 years in a row. Oregon’s defense better improve. Otherwise I’m afraid they’re going to get picked off and knocked out of any hope for a national championship with Mariota @ QB! .

        Reply this comment
  2. LetitCollapse
    LetitCollapse 23 October, 2014, 23:56

    If I were named by Time Mag one of the top 25 people to blame for the 2008 fianancial crash that cost millions of people their jobs worldwide and ruined the financial lives of countless Americans I think I would drink myself to death. But that’s just me! 🙂

    Reply this comment

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