In a good way. By crazy, I mean he was frank and to the point. This is crazy in a time where government lives in a world of gray and vagueness. On a wilder level, some of the media didn’t attack one part to exaggerate the significance of the plan (pointing a finger at the LA Times as an example of how to do it wrong).
Henry Paulson is the Treasury Secretary for the United States. On behalf of his administration, Paulson became the face of a proposed plan to re-organize the government agencies involved with Wall Street. The highlights of the plan include:
- Granting more power to the Fed
- Merging the SEC and CFTC (basically the SEC for commodities)
- Creating a regulating body for Mortgages
- Creating a regulating body for Hedge Funds
- Creating a regulating body for Private Equity
- Re-organization of insurance regulation to federal level, as opposed to state.
So is this good or bad? Both. Its good news and would be the biggest overhaul since The Great Depression of “the feds” that watch Wall Street. We also need regulation of these new industries (Mortgage backed securities, private equity, hedge funds, etc) and a different regulatory system for the old industries (banking and insurance) that have changed over time. I like CNN Money‘s version of the story because they cover the whole story. After covering the proposal, Paulson is quick to point out the importance of doing this right. He acknowledges this will take time and needs to be done right.
I feel sorry for the Bush Administration. Had they proposed this in 2003, they would get to take the credit for any good outcome. If done right, it could have overshadowed the whole Iraq thing. Instead, this appears to be a last ditch effort by an administration that is no longer liked by their own party. Retroactive politics is so 1930.
Here’s why I’m a little concerned. Full disclosure, I lean to the right when it comes to government oversight. Too much regulation is often worse than too little in a free market economy. Democrats control Congress. Given the bad taste Bush has left with the public with, odds are in favor of a Democratic executive branch for the next 4 years. This means Dems will be making the final decisions regarding governmental oversight of Wall Street. To the Weakonomist, I feel this could end with too much government control, stifling growth and innovation.
Example: Let’s say I wanted to start a company using venture capital (via private equity). A governmental body that regulates too heavily might make it difficult for me to find investors. They might have to register with 18 agencies, I have to register with 10, and getting a bank loan requires the bank to meet with investors regularly or face fines. Well maybe I decide thats too much work and I’ll keep my day job. Here are some companies that were started with venture capital: FedEX, Apple, Google, and YouTube (purchased by Google in 2006).
In the end, we’ll see what happens. As bills are proposed to Congress, be sure to write your representatives and share your concerns. I’m already drafting a letter to mine. Don’t feel the same way as I do? That’s fine. The United States allows us to both express ourselves without getting in trouble. What do you think should be included in the Paulson Plan?
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
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