6/22/2009
By Charles Payne, CEO and Principal Analyst

A few days ago we asked our readers to weigh in on proposed new rules and regulators. The response to my question about the financial regulatory overhaul and government grab for more power has been overwhelming. We've posted many of the responses here so you can see what others are thinking. If you want to weigh in we would appreciate it as well.

David Rust of NM says:
The answer to your question [Will a cascade of rules and regulators really do more good than harm?], in my opinion, is no. Unfortunately Congress never addresses fully the Law of Unintended Consequences in any regulation they enact. The notion that an army of "empowered" regulators will do much good ignores the fact that the current regulators were horribly inept at enforcing the already existing regulations. I fear more incompetence on a grander scale is really all we would get.

That's not to say that the effort should not be made however. I just don't hold much faith in our lawmakers to do the right thing, to strike the right balance. I do agree that smart, prudent, appropriate regulation needs to be written and enforced. One good idea I've heard is make these organizations own a certain percentage of the complex financial products they develop. Eat some of their own cooking is the phrase I heard. Sure, that means financial institutions will probably extend less credit than the past, but that isn't a bad thing in my opinion. A problem I see is that the smarter people are on the private sector side of the fence (thank God for that in many respects) and the regulators will always be behind the curve. On a positive note, there always will be the opportunity to unwind any truly oppressive regulations in the future.

One burning question I have: What will be the definition of "systemic risk" and how will it be applied? The devil is always in the details.

As a CFO of a community bank, the part of the regulatory reforms as put forth by the current administration that concerns us most is the Consumer Financial Protection Agency. To us, it seems like it will be CRA on steroids. Granted, no one should be denied credit based on factors other than pure credit reasons; capacity to repay, credit history and collateral value. We are afraid that this program will set goals or restrictions on our loan making functions not to mention increasing the cost of monitoring the loans we make for compliance with this program.

The vast majority of banks did not cause the current financial problems but all banks will feel the effect of the corrective measures. We have been loaning money for the last two years and will continue to do so, although our underwriting standards have gotten more stringent lately.

Keep up the good work and I will look forward to seeing you on Fox.

In my simple understanding, a crime committed is a crime committed and therefore subject to prosecution. If a person murders another person and found guilty, there is only two option of just punishment, capitol or life in prison. It gets ridiculous how complicated this administration wants to make things in order to hide their true agenda dictatorship and the redistribution of wealth.

The government caused this problem by manipulation in the first place. I have always argued, they should have enforced the regulations already there in the mortgage industry and then allow the free market to do its thing. Since they did not do that, they should have just solidified the FDIC to protect the consumer. If large companies failed due to their own greed, so be it. The well ran smaller institutions would have stepped in to buy up the pieces. In a just short period of time, stability.

The new rules and regulations will give the government the power to choose who succeeds and who doesn't. They will have the power to determine how successful a person can be instead of the sky being the limit. Innovation will be stifled making this country similar to the communist country. Instead of being leaders, we will have to check with other countries to see if what we are doing is okay with them. Thus, we will become followers.

Thanks Charles for this opportunity to share my thoughts.

William Hutchinson writes:
Mr Payne, Where are the new rules? All I see in the news is an expansion of bureaucratic power. I've seen no info on the rules to guide the use of power. This must lead to apprehension on the part of investors, especially if the control is undefined and variable.

I would like to see three rules.

1. You can't sell anything you don't own. Short sales of borrowed stock would be ok, and sale of options if covered by sequestered funds might be ok if processed thru a clearing house, not within a broker such as Morgan Stanley.

2. You can't insure or collect insurance on anything you don't own. Can anyone accept the idea that it is legal to take out insurance on someone else's life or house without even the owner knowing. The point here is that CDS's are bad.

3. Bring back Glass Stegal. This was a good idea; dropping it brought back one of the major problems of the '30's, that of gambling banks.

Tom Stender writes:
Can you say Marxism?

Eric Anderson of Katy Texas writes:
"Will a cascade of rules and regulators really do more good than harm?"
To answer your question we must first consider the fact that we were already protected by mountains of regulations and legions of regulators and yet, the system failed. What makes you think that by adding more of the same will yield materially different results? Doesn't one definition of insanity involve doing the same thing over and over while somehow expecting to achieve different results?

I think that before we can get to the right answer- we need to be asking the right questions. I enjoy your articles. Keep up the good work.

Annette Raynor of Colts Neck NJ writes:
THEY WILL DO MORE HARM. It is not as if there is not an enormous amount of rules and regulations already. Our financial professionals take a test that does little to prepare them for money management but instead prepares them to be a lawyer. Even the Investment Advisor test has 2 questions on options and hundreds of questions on rules and regulations.

This comes down to the basics: Just like you can use a knife to cut food or stab a person in the heart - you can't outlaw knives just because they can be lethal.

It is time for reform but that burden MUST be shared by everyone including the individual investor and their basic education. This education needs to begin in grammar school! Our graduates know how to
dissect a frog but they know little about how to manage their money right down the basics of a check book!

I say NO to more RULES/REGULATIONS and YES TO BETTER EDUCATION FOR OUR BROKERS, DEALERS, ADVISORS AND INDIVIDUALS ALIKE. It was painful to watch Congress speak about the bailout - it was clear they understood very little about our system and how it works, yet, they are making decisions that involve trillions of dollars!

An educated client will drive the market habits because they will be savvy enough to know the truth!

I believe every opinion on a problem should be accompanied by a proposed solution: As a country we would have been better off cutting a check to each person who files a tax return. I believe that check would be in excess of $100,000. already! That check could prevent foreclosures, boost retail, eliminate credit card debt and the CASH WOULD FLOW. Instead, it is horded by the institutions who helped create the issues in the first place!

In a nut shell, the government is responsible for causing this whole problem because they wanted low income people in homes they could not afford. These sales helped to drive up the price of housing simply because of the law of supply and demand. Like all bubbles, this one did not last, therefore, the present crisis.

This is why we need to get the government the out of our lives, plain and simple. They screw up most of what they touch, and they are getting worse, if that is possible.

The "official" rate of inflation has always been reported way below the actual. So really, inflation has been substantial during times of "low inflation", it's about to go ballistic, regardless of how it's reported.

Kathy Call writes:
It will harm business.  It will require more administrative burden to business which will increase cost and that cost will be passed on downto the consumer.  Look at what Sarbanes Oxley and Spitzer did to business.

As long as we are going to have to deal with czars for this and that, where is our Gasoline czar?  Why don't we have some czar protecting us from getting hosed at the pump?  Gasoline is up $.50 in one week in California.  We are getting ripped off - big time!