Is Financial Reform Simply Washington’s Latest Boondoggle?

23 04 2010

By Timothy D. Naegele[1]

When I arrived in Washington, D.C. after graduating from law school in California, I spent two years at the Pentagon working as an Army officer in intelligence and budgets.  It was a great experience, and I have the utmost respect for our military, which is the best of our government.  One lesson I learned was that if Congress was breathing down the Pentagon’s neck, the easiest way to deal with the issue was to “reorganize,” which would throw them off the track—and the “bloodhounds” would lose the scent.

Then I worked on Capitol Hill as a young attorney with the Senate Banking Committee, and realized that when there was a national policy issue that was “too hot to handle,” a presidential commission would be formed, not unlike reorganizations at the Pentagon.  Months and sometimes years would pass while people studied the issues ad nauseam; and in the interim, the monkey was off the politicians’ backs.  One of my first tasks on the Hill was to staff such a presidential commission.

Fast-forward to today, and no regulatory “overhaul” is going to make a tinker’s damn in preventing future economic crises or solving the present one.  By and large, the financial regulatory agencies (e.g., the Fed, the FDIC) do a fine job, often under very difficult circumstances.  There are career professionals who will keep doing their jobs, regardless of what Barack Obama or Congress propose or enact—which is high political theater and demagoguery, and not a whole lot more.

Recent reorganizations, such as in the intelligence community, have not produced better intelligence.  Similarly, changes to the financial regulatory structure will not prevent the economic meltdown that riveted the nation in 2008, and continues to this day.  It is a tsunami, and Man’s ability to stop or affect it is marginal at best.  Reorganizing the deck chairs on the Titanic, or closing the barn door after the horse is out, will never address future problems.  The flim-flam boys of Wall Street and other financial capitals will make sure of that.

Alan Greenspan unleashed the tsunami; and the words of Giulio Tremonti, Italy’s Minister of Economy and Finance, are true and cogent to this day:

Greenspan was considered a master.  Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most.[2]

No financial regulatory overhaul will prevent a Fed chairman like Greenspan, or some other government official from making mistakes that produce massive suffering domestically and globally.  Perhaps if Paul Volcker had been in charge of the Fed instead of Greenspan, the economic meltdown would have been avoided.  After all, Greenspan admitted in testimony before the House that he never saw the housing crisis coming.

Like the emperor with no clothes in Hans Christian Andersen’s fable, no one was willing to call Greenspan a buffoon who was over his head—until he had unleashed economic pain, the likes of which has not been seen since the Great Depression.  It will continue to the end of this decade, in all likelihood; and there is nothing that government can do to stem it.[3]

With respect to the existing financial regulatory agencies, it must be remembered that they and their affiliated agencies (e.g., the FSLIC, RTC) dealt effectively with the savings and loan crisis of the 1980s and 1990s.  In the process, almost 800 S&Ls failed, an enormous financial crisis was averted, and the ultimate cost to the taxpayers was less than expected.

Nonetheless, in 1999, Congress repealed the Glass–Steagall Act, which had controlled financial speculation since its enactment in 1933.[4] Under Glass–Steagall, there had been a separation between commercial banking and “investment banking”—or gambling by Wall Street.  Coupled with Greenspan’s mistakes and financial deregulation, which had been championed by him, a laissez faire attitude in Washington resulted in the massive problems of today.

Can greed on Wall Street and in other financial markets be stopped?  Never.  Can the SEC do a better job?  Can the existing financial regulatory agencies tighten up here and there, and do their jobs better with enhanced powers?  Sure, but the system is not perfect just as human beings are not perfect.  Utopia is not possible; and history repeats itself over and over again.  More government regulation will not prevent economic tsunamis and meltdowns from happening.  Anyone who says so might try to sell you a bridge in Brooklyn next—or ObamaCare.[5][6]

Yet, capitulation to political demogoguery and public anger is likely.[7] With the repeal of Glass–Steagall and financial deregulation, a blurring of the lines between commercial banking and investment banking took place; and now the chickens are coming home to roost.  The baby is in the process of being thrown out with the bath water; and the demogogues in Washington are strutting in full bloom.[8] A Wall Street Journal editorial states:

While the details matter a great deal, the essence of the exercise is to transfer more control over credit allocation and the financial industry to the federal government. The industry was heavily regulated before—not that it stopped the mania and panic—but if anything close to the current bills pass, the biggest banks will become the equivalent of utilities.

The irony is that this may, or may not, reduce the risk of future financial meltdowns and taxpayer bailouts.

. . .

As in health care, Democrats are intent on ramming this reform through Congress, and Republicans ought to summon the will to resist. Absent that, the only certain result is that Washington will be the new master of the financial universe.

Amen, and then some![9]

© 2010, Timothy D. Naegele


[1] Timothy D. Naegele was counsel to the U.S. Senate Banking Committee, and chief of staff to Presidential Medal of Freedom and Congressional Gold Medal recipient and former U.S. Senator Edward W. Brooke (R-Mass), the first black senator since Reconstruction after the U.S. Civil War.  He practices law in Washington, D.C. and Los Angeles with his firm, Timothy D. Naegele & Associates (www.naegele.com).  He has an undergraduate degree in economics from UCLA, as well as two law degrees from the School of Law (Boalt Hall), University of California, Berkeley, and from Georgetown University.  He is a member of the District of Columbia and California bars.  He served as a Captain in the U.S. Army, assigned to the Defense Intelligence Agency at the Pentagon, where he received the Joint Service Commendation Medal.  Mr. Naegele is an Independent politically; and he is listed in Who’s Who in America, Who’s Who in American Law, and Who’s Who in Finance and Business. He has written extensively over the years.  See, e.g.www.naegele.com/whats_new.html#articles

[2] See http://www.americanbanker.com/issues/173_212/-365185-1.html

[3] See, e.g., http://www.realclearpolitics.com/news/tms/politics/2009/Apr/08/euphoria_or_the_obama_depression_.html and http://www.philstockworld.com/2009/10/11/greenspan’s-legacy-more-suffering-to-come/; see also http://en.wikisource.org/wiki/The_Emperor%27s_New_Clothes

[4] See, e.g.http://en.wikipedia.org/wiki/Glass–Steagall_Act

[5] Harvard professor Niall Ferguson and Wall Street investor Ted Forstmann state in a Wall Street Journal article:

By all means let us regulate the derivatives market—beginning with a reform that makes it a real market. And let’s clamp down on excessive bank leverage. But let us not believe we can abolish both bailouts and depressions, other than by creating another layer of government regulation.

See http://www.naegele.com/documents/BacktoBasicsonFinancialReform.pdf

I agree with their conclusion.

[6] See also https://naegeleblog.wordpress.com/2009/12/16/the-great-depression-ii/

[7] See, e.g., http://www.naegele.com/documents/AScoldingforWallStreetHonchos.pdf; see also http://online.wsj.com/article/SB10001424052748704830404575200580858688618.html?mod=WSJ_hps_MIDDLEThirdNews

[8] Real problems with the legislation may be considerable.  See, e.g.http://online.wsj.com/article/SB10001424052748703876404575199582764862248.html

[9] See http://www.naegele.com/documents/TheNewMasterofWallStreet.pdf





America: A Rich Tapestry Of Life

26 02 2010

By Timothy D. Naegele[1]

What makes a country special and, yes, great?  Its land, its people, its history, its culture, its belief systems or its soul?  All of these, and so much more—including intangibles that most of us never think about.  The United States is that country, unlike any other on the Earth.  There is no need for Americans to flaunt it or be arrogant or condescending or aloof.  Those are not the American way.  Deep beneath the surface, there is love for people everywhere, and an appreciation of each person’s God-given gifts and uniqueness.  In a recent interview, I said:

I believe in this country, and I believe in Americans of all colors, faiths and backgrounds.  The United States is the only true melting pot in the world, with its populace representing a United Nations of the world’s peoples.  Yes, we fight and we even discriminate, but when times are tough—like after 9/11—we come together as one nation, which makes this country so great and special.  Also, all of us or our ancestors came here from somewhere else.  Even the American Indians are descended from those who crossed the Bering Strait—or the “Bering land bridge”—according to anthropologists.[2]

Most of us spend a lifetime dealing with issues and challenges that we believe, rightly or wrongly, are not of our own making; and we react accordingly.  Some are big, but most are small and petty, albeit each seems so important at the time.  For example, last night I bought a new Apple iPod on which I loaded music and other data from my laptop, but I could not find the icon on my desktop this morning.  I called Apple’s technical support line, and was routed to a fellow in India.  He was very nice and courteous, but I told him that I wanted to speak with someone in the United States.  When he said that he would let me talk with his supervisor, I thanked him but said no, and hung up and called Apple again.  The same thing happened, so I tried a third time and a very nice woman came on the line named “Abby.”  I detected a slight accent and asked where she was located, and she said the Philippines.  I thought about hanging up a third time, but decided against it.

Abby was delightful, and really tried to help.  Having been an Apple customer for about 20 years, I know how diligently she tried.  Finally, she routed me to “Amy,” who turned out to be located in Boise, Idaho.  Amy was delightful too; and we tried everything, but nothing worked because the “Made in China” iPod is apparently defective and needs to be replaced.  In the course of our discussions, I learned that Amy hailed from California, where I was born and raised.  Having had bad experiences with HP recently—where Amy’s husband has worked—in terms of its nonexistent customer support, I was pleased to tell Amy how I had gone through Apple’s ups and downs, but have been generally quite pleased with its telephone support.  It has kept me in the fold and a loyal Apple customer through thick and thin.  Something struck me in the gut though, about companies like Apple farming out calls to India, the Philippines and other countries.  It just seemed very un-patriotic.  It meant the loss of jobs that might have gone to Americans; and it was the first time that I found Apple doing it.

If I had purchased Apple stock at about $12 per share many years ago, I would have made out like a bandit.  If I had bought stock in Ford when it reached a low of $1.01 in November of 2008, which was not too long ago, I would done very well.  Ford has announced plans to hire more American workers; its new cars are great looking; and their quality is apparently superb.[3] Despite the fact that the U.S. may be in the “doldrums” for the rest of this decade, I have been pleased to tell friends and acquaintances that Ford is back, or so it seems, just like Apple came roaring back.  My first four cars were Fords, before I switched to foreign brands—with two Chevrolets thrown in—and it is nice to think about Ford once again and to have an American automaker to be proud of.  Lots of people are avoiding cars from Barack Obama’s “Government Motors” and Chrysler, and I share their views.

Whether it is a computer-related product or a car or almost anything else in life, there is a newfound pride in buying American that is surfacing in this country.  Will it result in harmful protectionism that sent the global economies into a tailspin during the 1930s?  I do not believe so because at the very least, complicated products like cars and computers often have parts that are made abroad.  However, as times get tougher, Americans and others may buy their own country’s products before turning abroad.  This is human nature; or their decisions may be dictated solely by price not sentiment.  Apple’s iPod and its computers are made in China, but even that might change—although it seems unlikely anytime soon.

In April of 2009, I wrote: “America and other nations are in uncharted waters [economically, politically, and in other ways]; and their politicians may face backlashes from disillusioned and angry constituents that are unprecedented in modern times.”[4] Even harder days are ahead, and politicians may experience electoral “bloodbaths.”  These will be years of taking stock, and of being thankful for the little things—for families and helping others.  The limits of hedonism, godless secularism, and paying homage to the false gods of materialism will become self-evident.  We may opt for simpler lives because we have to, and because we come to like and prefer a return to the basics.

When I decided that I wanted to work on Capitol Hill after spending two years in the Army, rather than rejoin a prestigious San Francisco law firm where I could make more money, I tried to get a job with then-U.S. Senator Alan Cranston from my home State of California.  To my surprise and disappointment, his staff was headed by a fellow from New York who apparently wanted to propel Cranston into the foreign policy arena, and was less interested in hiring Californians like me.  Hence, I pounded the Senate corridors and learned that then-U.S. Senator Edward W. Brooke—the first black senator since Reconstruction after the U.S. Civil War, with Barack Obama being the third—was hiring an attorney for the Senate Banking Committee.

I was hired by his chief of staff, Dr. Alton Frye, without ever having met the senator.  I was honored that a white man from California was working for a black man from Massachusetts, but that is how America works.  I went on to write the “Brooke Amendment” relating to public housing; and the national “Housing Allowance” that morphed into the Section 8 housing program, which has helped millions of Americans.  The nicest thing that some people might say about me is that I am “outspoken.”  Ed Brooke put it another way one day, when he said that I lacked “tact.”  Perhaps this is the beauty of being an American.  Each of us can speak our mind on any and every issue, without qualms about doing so.

I criticize President Obama regularly, often in scathing terms, but I almost voted for him.  Even though I disagree with almost everything he does, because I am much more conservative than he will ever be, I would prefer him any day of the week to a leader like Russia’s murderous dictator-for-life Putin.[5] Perhaps I will never forget the way Obama wrote lovingly about his mother and his maternal grandparents, “Toot” and “Gramps,” in his book “Dreams from My Father.”[6] Yet, after working in Washington, D.C. for 21 years nonstop, the one lesson I learned is that government does not work; and the Obama presidency is a shining example of that.  Only the Pentagon—where I spent two years as an Army Officer—and our military are remotely efficient and effective.  The rest of government is a vast “wasteland,”  even though there are good people working at all levels of government.

America is magnificent geographically, whether one thinks about the Grand Canyon, Yellowstone, Yosemite and other breathtaking parks, or its deserts, mountains, lakes, inland waterways and coastlines.  Its metropolitan areas are unparalleled, be it New York City or San Francisco, or thousands of cities and towns in between.  Its people are like a rainbow, with diversity undergirding all.  Its culture is rich because of the many cultures that have been blended into the American experience, which is unique in all the world.  Its belief systems are as varied as there are colors in the rainbow.  And its soul . . . ah yes, its soul . . . embraces the souls of more than 300 million people, woven together into a rich tapestry of life.

When we have decisions to make or feel that we are being called in a particular direction, our strength comes in putting our faith in God within and trusting the guidance we receive through prayer, intuition or love.  As individuals and as a country, we walk by faith not by sight.  Yes, America is great . . . from sea to shining sea—and deep in the Pacific where volcanic peaks of the Hawaiian Islands loom, and in the majestic northernmost reaches of Alaska’s tundra, and in the azure Caribbean too.  God blessed us beyond belief, although we take it for granted much of the time.  Everyone does.  This is human nature.  After all, we are not perfect.  Neither is America.  Only God is.[7]

© 2010, Timothy D. Naegele

Statue of Liberty


[1] Timothy D. Naegele was counsel to the U.S. Senate Banking Committee, and chief of staff to Presidential Medal of Freedom and Congressional Gold Medal recipient and former U.S. Senator Edward W. Brooke (R-Mass), the first black senator since Reconstruction after the U.S. Civil War.  He practices law in Washington, D.C. and Los Angeles with his firm, Timothy D. Naegele & Associates (www.naegele.com).  He has an undergraduate degree in economics from UCLA, as well as two law degrees from the School of Law (Boalt Hall), University of California, Berkeley, and from Georgetown University.  He is a member of the District of Columbia and California bars.  He served as a Captain in the U.S. Army, assigned to the Defense Intelligence Agency at the Pentagon, where he received the Joint Service Commendation Medal.  Mr. Naegele is an Independent politically; and he is listed in Who’s Who in America, Who’s Who in American Law, and Who’s Who in Finance and Business. He has written extensively over the years.  See, e.g.www.naegele.com/whats_new.html#articles

[2] See http://www.philstockworld.com/2009/10/11/greenspan’s-legacy-more-suffering-to-come/ and http://seekingalpha.com/instablog/2951-ilene/31177-interview-with-timothy-d-naegele

[3] See, e.g., http://finance.yahoo.com/q/hp?s=F&a=00&b=3&c=2008&d=01&e=2&f=2010&g=m; see also http://www.ford.com/about-ford/news-announcements/press-releases/press-releases-detail/pr-ford-kicks-off-2010-with-24-31945 and http://online.wsj.com/mdc/public/page/2_3022-autosales.html#autosalesE

[4] See http://www.realclearpolitics.com/news/tms/politics/2009/Apr/08/euphoria_or_the_obama_depression_.html; see also http://www.americanbanker.com/issues/173_212/-365185-1.html

[5] Compare https://naegeleblog.wordpress.com/2010/01/20/the-end-of-barack-obama/ and https://naegeleblog.wordpress.com/2010/01/19/emp-attack-only-30-million-americans-survive/ and https://naegeleblog.wordpress.com/2010/01/01/barack-obama-america’s-second-emperor/ and https://naegeleblog.wordpress.com/2009/12/26/obama-in-afghanistan-doomed-from-the-start/ and https://naegeleblog.wordpress.com/2009/12/05/is-barack-obama-a-racist/ with https://naegeleblog.wordpress.com/2010/02/09/russias-putin-is-a-killer/

[6] See Obama, “Dreams from My Father” (paperback “Revised Edition,” published by Three Rivers Press, 2004), pp. xii (“[S]he was the kindest, most generous spirit I have ever known, and . . . what is best in me I owe to her”), 89 (“[Toot and Gramps] had sacrificed again and again for me.  They had poured all their lingering hopes into my success.  Never had they given me reason to doubt their love; I doubted if they ever would”), 343 (“I looked out the window, thinking about my mother, Toot, and Gramps, and how grateful I was to them—for who they were. . . .”); see also https://naegeleblog.wordpress.com/2009/12/05/is-barack-obama-a-racist/

[7] Some years ago, I had a law student from UCLA who worked for me as a law clerk doing research and legal writing.  He made a small mistake in a brief, but one that I considered important.  I jumped all over him.  He had worked in Saudi Arabia as an engineer before coming to law school; and he stopped me, and asked if I knew how the Saudis made Oriental rugs.

Some were made by hand and others by machines, he said, but in every case there was an intentional mistake inserted somewhere in each rug.  He asked if I knew why, and I said no.  He said the Saudis believed that only Allah—or God—is perfect; and of course I believed that too.  Since then, when I have jumped all over myself for making mistakes, or thought about criticizing others, I have recalled his story.  None of us are perfect.  Only God is.