Remember how everyone told us that investment banks were trading securities, more specifically derivatives, which are so complex that not even Warren Buffet or Alan Greenspan understood them and this led to the downfall of the economy? Well, there is no longer any need to concern yourself with any of that. You see, even though Warren Buffet doesn’t understand derivatives trading our friends in Congress understand it perfectly. In fact, they understand it so well that they have produced and passed a 2000+ page bill outlining new regulations on derivatives trading among other massive financial regulation.
The three most visible minds behind the new financial regulation were Chris Dodd (D – Connecticut Senator), Barney Frank (D – Massachusetts Representative), and Harry Reid (D – Nevada Senator and Majority Leader). To say that these men are completely inexperienced and uneducated with regard to the world of finance would be a gross underestimation. Dodd did his undergrad in English literature, Frank in history, and Reid went above and beyond with a degree in political science. All three men went on to achieve law degrees. Chris Dodd has the impressive distinction of holding a complete monopoly on the threesome’s private sector work experience with two years under his belt as a lawyer at a private firm. Neither Barney Frank nor Harry Reid worked one day in the private sector in their professional careers. What’s more, none of these men has spent one day in the financial sector and not one studied finance in school.
This is not an atypical cross-section of the people that are governing us today. “Politician” has become a profession in this nation – no longer a service. If, for a minute, we even assumed that the world does need protection from financial risks (which I would strongly argue it does not), this is like the blind leading the blind. Dodd, Frank, and Reid would have us believe that they are somehow protecting you and me from the evils of Goldman Sachs and John Paulson. However, they do not even know what they are protecting us from. What Dodd, Frank, and Reid do know is how to win votes (though they seem to be losing their touch). They can stand at a podium and tell the world that they are protecting them from the evil robber barons on Wall Street. Because most of the populous does not understand financial derivatives any better than their congressmen, people are duped into buying ill-advised protection rather than face the free market head on.
How many of you got burned on your derivative investments over the past two years? If you did get burned, how much of that was attributed to fraud or some other criminal act versus a bad investment decision? Even though most people (particularly congressmen) do not understand derivatives, they are not beyond the human realm of understanding. Mr. Buffet, though he claims derivatives can be harmful, trades in derivatives every day in his insurance concerns. You own a derivative on your automobile called insurance.
A lack of understanding in Washington DC is making the financial system into a mass of molasses where nothing can be done without jumping through the hoops of regulation. This serves to make finance more expensive and a game that only the behemoths can play in because of the exorbitant expense of jumping through said regulatory hoops. The consumers and the small business people will end up paying for this. It is already reported that banks will do away with free checking and many branches, instead charging $10 per month for a checking account and requiring you to deposit checks at ATMs instead of bank branches. Loans will become more expensive as the costs of administering those loans within the government’s guidelines increase. Lending to small businesses and consumers will become less frequent as financiers are unable to hedge their risks with derivatives. Food production will become more expensive as farmers are unable to sell derivatives on their crops at the same prices.
Government has grown too large and it is stifling the people of this once great nation. We no longer believe in free enterprise and efficiency, but rather rules and safety nets. The only way this nation or any nation will prosper is to afford its citizens liberty – something that is lost on our politicians. This election season take this nation back from the career politicians and those that would rather security (in all forms, not just militarily) than liberty and let’s start on the path to rebuilding the prosperous, free society that made this nation so great.
“Any society that would give up a little liberty to gain a little security will deserve neither and lose both.” -Ben Franklin