Don’t Rush To Regulate

from Forbes

If 2006 was a good year for economic growth and big gains, then 2007 is shaping up to be an even better one for economic regulation and big government.

Democrats are determined to regulate everything from energy to hedge funds, private equity to executive compensation packages. With the recent headlines out of the subprime mortgage industry, you can now add that sector to the list too.

The so-called “subprime meltdown” caused a lot of chin-wagging on Capitol Hill in the past month and will continue into next week when Congress holds hearings to publicly scold the industry leaders and discuss ways they can “save” homeowners. Before lawmakers go any further, I have but one small request: Look before you leap.

Many Democrats, led by their starting team of Monday morning quarterbacks, Sen. Chris Dodd, D-Conn., of the Senate Banking Committee and Rep. Barney Frank, D-Mass., of House Financial Services Committee, are tendentiously planning to punish the “predatory lenders”–those accused of feasting on low-income, weak-credit wannabe homeowners–while proposing to bail out the not-very-responsible folks who accepted these loans.

While increased regulatory discipline may in fact prove to be the key, Congress should not be champing at the bit before they know all the facts.

More here.

One Response to Don’t Rush To Regulate

  1. Charlotte Gioia February 25, 2015 at 11:35 pm #

    The article was written in 2007, just at the very start of the current economic crisis. Like the author says in the article, some political parties like Democrats think that it is beneficial to tax everything such as energy, private equity or the subprime mortgage industry. I agree with the author that doing so is not a very good idea as it makes people and companies spend more money whereas the purchasing power is unchanged. However, regulating the subprime mortgage industry could have been a good thing as the economic crisis is due partly because of the mortgage crisis. Lenders like banks or insurance company (just like Nationwide) lent a tremendous amount of money to people who were unable to pay off their loans. As a consequence, the banking system started to lose money and many management teams committed unethical behavior to survive within this environment. Even if the government’s regulations were not as efficient as expected, at least it tried.
    However, I do not agree about the author’s opinion on Sarbanes-Oxley Act. I think this kind of measure is a good thing because it shows that companies and the government (after scandals like Enron and WorldCom) do not want to reproduce the errors committed in the past. It shows their good will. Moreover, SOX lead companies to be more transparent and to be more consistent and precise in their information and financial reports.

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