3 Reasons The New Financial Regs Wont Fix Anything

3 Reasons The New Financial Regs Wont Fix Anything The financial reform bill currently working its way toward Presiden...

3 Reasons The New Financial Regs Wont Fix Anything The financial reform bill currently working its way toward President Barack Obamas desk for signing is being touted as the biggest overhaul of the banking and investment sectors since the Great Depression. But the new regs wont be any more effective than the ones they replace in fixing anything or preventing the next major panic for at least three reasons. 1. New Watchdog, Old Tricks They create a new watchdog consumer agency designed to protect consumers from their own supposed stupidity. Youll now be facing fewer choices when it comes to getting credit cards, loans, and other basic financial transactions. 2. Never Too Big To Fail They replace Too Big to Fail with... Too Big to Fail. One of the reasons why major financial institutions played Russian Roulette with the economy was because they were betting they would get bailed out. Which is precisely what happened. The new rules codify the idea that the government will make sure certain institutions can never fail. And if you think the big boys wont game that system, then you dont understand how well Citigroup, Goldman Sachs, et al have come through the current meltdown. 3. Housing Bubble Trouble The financial crisis was set into motion by government policies that encouraged people to buy homes they couldnt afford at prices that were unsustainable. Between desperate attempts to keep people in houses and to keep interest rates below an effective rate of zero, the government continues to pour more money down the same rathole. Markets work best when the risk and reward incentives are clear cut. When investors know they really can lose it all, they act responsibly with their money. If regulators think they can create a system that cushions us from bad decisions and doesnt encourage bad behavior, its a delusion well all be paying for for a very long time. 1. New Watchdog, Old Tricks They create a new watchdog consumer agency designed to protect consumers from their own supposed stupidity. Youll now be facing fewer choices when it comes to getting credit cards, loans, and other basic financial transactions. 2. Never Too Big To Fail They replace Too Big to Fail with... Too Big to Fail. One of the reasons why major financial institutions played Russian Roulette with the economy was because they were betting they would get bailed out. Which is precisely what happened. The new rules codify the idea that the government will make sure certain institutions can never fail. And if you think the big boys wont game that system, then you dont understand how well Citigroup, Goldman Sachs, et al have come through the current meltdown. 3. Housing Bubble Trouble The financial crisis was set into motion by government policies that encouraged people to buy homes they couldnt afford at prices that were unsustainable. Between desperate attempts to keep people in houses and to keep interest rates below an effective rate of zero, the government continues to pour more money down the same rathole. Markets work best when the risk and reward incentives are clear cut. When investors know they really can lose it all, they act responsibly with their money. If regulators think they can create a system that cushions us from bad decisions and doesnt encourage bad behavior, its a delusion well all be paying for for a very long time. Approximately 2 minutes. Produced by Meredith Bragg and Nick Gillespie, who also hosts. Go to http//reason.tv for reference links and downloadable iPod, HD, and audio versions of this and all our videos, and subscribe to Reason.tvs YouTube channel to receive automatic notification whe