Let’s prevent crime by making up some new laws. Sure, that’s the answer. NOT.

In the Washington Post of December 6 (Link HERE) Katrina vanden Heuzel joins the chorus of pundits who:

(1) falsely accuse bankers, hedge fund managers and others of crimes,

(2) long for the days before “irresponsible de-regulation” (99% of them mention Glass-Steagal, the repeal of which I find very difficult to blame for the housing bubble or its collapse, but, HEY it sounds smart to mention a law by name),

(3) fail to mention one specific law or regulation the continuation or re-inactment of which would have or will prevent the next “crisis,”

(4) criticize GW Bush and everyone in his administration for using “tax-payer money to bail out” the banks,

(5) suggest that the solution to preventing more bad government decisions is (a) the enactment of a new and different set of laws and regulations that look nothing like the ones that were repealed, and (b) vesting unelected government officials with more power via those new laws and regulations.

Really?  The answer to the government over-stepping its bounds, having and mis-using too much power is  . . . give it ever more “regulatory” power to make banks and other institutions beg for permission before they do this or that?

I suppose that we’re meant to assume that the next Secretary of the Treasury will be more a pure-hearted, more honest man who will not have any friends or former colleagues in the hedge fund business (and will not have anyone on his staff who does).  That way, when one of those all-seeing, all-powerful, clairvoyant regulators spots “systemic risk” or some other such deviation from acceptable behavior that Dodd-Frank purports to have outlawed, no one will get a secret meeting or phone call.  We’re going to outlaw cronyism, damn it, because we’ll keep people with friends and acquaintances in high places from ever occupying an office of power – that’ll work!

Presto!  Outlaw breaking all the new laws and you’ve got perfection!  I’ve got another idea – let’s pass a new law that says murder is really, really bad; so bad that we’re going to start anticipating it (yeah, like in Minority Report with Tom Cruise) and that will have a huge effect on the number of murders, right?  That’s exactly what Dodd-Frank purports to do – the newly empowered regulators will have perfect vision into the future and will prevent any more icky stuff from happening.

Grow up Ms. vandan Heuvel.  If you know of crimes committed by bankers or hedge fund managers, report them immediately to the proper authorities so they can prosecute them under the laws as they existed pre-Dodd-Frank.  If you know not of any such illegalities, I beg you to stop implying that criminals are running free in the streets of mid-town Manhattan with the blessing of the Republican party.

And, with regard to your desire to prevent all the future bad deeds, I suggest that for one to think that the government can “regulate” out of the system all bad risk and the concomitant potential for failures and losses is naive; . . . no it’s dumb and evil.  The only way to accomplish such immunity from loss would be a complete take-over and shut-down of the financial markets – is that what you want?

It boggles the mind to contemplate the conceit necessary for one to believe that the government can imagine, predict, categorize and outlaw only the ‘bad’ versions of the innumerable ways capital is directed to productive uses.  Furthermore, beyond preventing fraud and theft, why should the government decide what is good or bad?

Bottom line:  What is the ideal regulatory regime for the capital markets?

Two laws:

1.  No Fraud – Check.

2.  No theft – Check.

And, since the state has the exclusive power to compel a party to honor any contract it enters of its own volition, the state must exercise that power (a) as necessary and (b) without regard to what the enforcer thinks the ‘fair’ outcome of the business transaction should have been.

Any other laws will give protection or otherwise give preference to one party over another, and the (unconstitutional) power to pass such preferential laws will lead to perversion and abuse of the law.  (See Frederic Bastiat, The Law  See in particular, the chapter Property and Plunder.)

Don’t change plunderers.  Stop the plundering.