Tuesday, February 09, 2010
Children's stories contain animals, even objects, that have human-like characteristics. They have not only intentions, but often faces. Further, they are either good or bad. Only later do we learn that most of the world is not so much malicious as indifferent. Hopefully, we learn that many most facets of society, such as income distribution, or the creation of cities, of technologies, is an emergent phenomenon, created but not designed by individuals, and singular individuals mainly help us apply a narrative.
So, smarmy Elizabeth Warren, writes an article today that suggests all bank policy is the result of bank CEO intentions. They " brought the economy to its knees", and now are "determined to stop any kind of watchdog" (the SEC, Fed, FDIC, OCC, and state insurance regulators don't seem to count). They are "bonus babies who were so short-sighted that they put the economy at risk and contributed to the destruction of their own companies". She shows not mere mistrust, but contempt for the the financial market she plans on controlling. As William F. Buckley put it, I would rather have Citibank be run by the first 100 names in the Boston phone directory than a bunch of Harvard professors.
I've worked with a CEO of a large financial organization. He was a nice guy, but he had very little to do with the pricing, product design, or other tactical strategic issues in the bank. He managed 'the process', personalities, did public relations, and perhaps championed a handful of corporate actions such as acquisitions. To personify the banking industry's actions as the will of their individual leaders, is like saying that America does what Obama wants it to do. They have more of a say than anyone, but it's still a small say.
If Jamie Dimon wanted to price, say, credit cards at a rate higher, lower, or less nuanced than other banks, more power to him, but if that tactic started losing money, it would be abandoned, and if it made money it would be copied. That's how the market works, profits tell banks what to do, losses what not to do. To the extent they are making short term profits, say by lending to windfarms due to a stimulus package windfall, investors are the only ones with real incentives to evaluate and punish firms for this behavior. After all, in Washington, they not only still encourage home loans with only 3.5% down, they shamelessly blame bankers for lending too much to home buyers while boasting about their affordable housing initiatives that made any regulatory concern about lower underwriting criteria impossible, and indeed sued firms, and blocked their mergers, if they did not meet lending targets to people who by definition had little income (historically underserved communities).
That someone with such a understanding of complex financial institutions highlights her naiveté, as if things are what they are, not because they are an equilibrium of borrower and saver preferences, but rather, the whims of The Captains of Industry in their top hats. To give her power, would merely reinforce what everyone in the industry knows, that Washington regulators are out-of-touch. For her, competition is simply a "race to the bottom to develop new ways to trick customers", and so we should expect her to create a 'stable' industry, like in our education and postal industries, where there is limited competition but lots of guarantees, and little or no productivity growth. She knows what banking customers want, and so doesn't trust a market to provide quality services and products because evil CEOs hypnotize their customers into thinking they want things they really don't. A better definition of a do-gooder cannot be found. I think she might be successful in her primary objective, in that socialists countries were immune from financial crises. I just think she doesn't realize this cripples GDP growth, as highlighted by the Cold War 'experiment'. After all, you can keep a pet from getting sick by killing it, if that's your sole objective.
Bad things aren't the result of evil intentions, so much as smart people overconfident in their ability to make the world a better place. They see people who disagree with their means as disagreeing with their ends, totally dismissing the possibility that they could be making things worse. She thinks her new fiefdom, the CFPA , will "consolidate seven separate bureaucracies, cut down on paperwork, and promote understandable consumer products. In the process, it will stabilize the industry, rebuild confidence in the securitization market, and leave more money in the pockets of families". ORLY? When has a new bureaucracy reduced bureaucracy? When has it 'cut down on paperwork'? The pages of fine print and endless places to initial are because of our laws and regulations, not in spite them. Will the bureaucracy make people wealthier? Well, government's the main place of employment growth, so I guess things are looking up.