Obama's Financial Regulatory 'Change' Spells Disaster
Who will interpret this, and what happens when the administration changes? Obama missed an opportunity here to give smaller investors a chance in the marketplace by changing some of the rules. Instead, the Wall Street banks preserved the structure they desire and will continue to run roughshod over investors.
To protect investors, Obama looks to create yet another new agency. We all know how well government agencies perform -- just look at how well the SEC has exposed fraud in the past few years. It took insiders to turn in Bernie Madoff. If they hadn't, would the SEC have found him?
Obama broadens FTC power over the banking system, as if banks don't have enough regulators to deal with.
He requires certain companies to have 401(k) retirement plans for employees, but investment choices are dictated by statute or regulation!
Obama clearly doesn't have faith in free markets. He wants a centrally planned system in which a bureaucrat dictates what the market should do. When the market doesn't behave as planned, Obama punishes the participants. Markets do not, cannot function efficiently when they are centrally planned and forcefully regulated.
So things are going to cost a lot more. Fees will rise, and banks will create new fees to comply with regulations. Your choices will be limited. If you want to assume more risk, you are probably going to have to figure out different ways to do it. Access to capital will eventually be curtailed, since investment vehicles and banks that provide it will be heavily regulated. It will be tougher and more expensive to start a business.
Eventually, capital will find its way out of the United States. Other areas of the world are trying to attract investment capital: Singapore, Dubai, Hong Kong, and London will readily accept the role of dominant world financial center if Obama wants to cede New York City. When capital evacuates and gets invested elsewhere, it's tough to get back.
The restrictions that Obama is proposing are essentially meaningless when it comes to protecting investors against bubbles. If everyone decides to use their money to do the same thing -- buy internet stocks, buy real estate, invest in anything -- none of the proposed regulations or regulatory agencies will stop it. Bubbles happen in capitalistic free market societies. The restrictions that Obama is proposing will curb innovation, the catalyst of entrepreneurial activity. Reducing innovation, and making capital more expensive, will cause a drop in entrepreneurship, precisely the type of activity that the U.S. needs to grind its way out of this deep recession.