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





Jefferson, Lincoln And America

22 03 2010

By Timothy D. Naegele[1]

Three books are worth reading about Thomas Jefferson, Abraham Lincoln, and America: the “Domestic Life of Thomas Jefferson,” which was edited by his great-granddaughter, Sarah N. Randolph[2]; “Lincoln” by David Herbert Donald[3]; and “A History of the American People” by Paul M. Johnson.[4]

Jefferson was a giant, and the first book chronicles his extraordinary life through his letters and the letters of others, lovingly assembled and edited by Randolph.  At various points, the book is moving and tearful; elsewhere it is joyous and humorous. At all times, Jefferson’s seemingly-unlimited talents and brilliance, as well as his qualities as a decent human being and his erudition, shine forth.

The greats of American history come alive through their correspondence and Jefferson’s letters to George Washington, Benjamin Franklin, John Adams, James Madison, James Monroe, Patrick Henry and Alexander Hamilton, to name just a few—along with the Marquis de Lafayette and Napoleon Bonaparte of France.  We witness firsthand the American Revolution, this nation’s founding, Jefferson’s years in Paris, the French Revolution, and his presidency.

Perhaps three things stand out most of all: the depth of his love for his family and the meticulous care with which he nurtured each family member; his love for Monticello and his desire to return there and be rid of the burdens of public office; and his relationship with Adams that, once breached, is finally restored at the end of their lives.

Remarkably, both presidents died on the 4th of July, 1826.  To paraphrase the words of Jefferson, two “Argonauts” sailed on, leaving this country forever changed and better because they had passed here.  “I steer my bark with Hope in the head, leaving Fear astern,” Jefferson wrote to Adams in 1816.  From being Secretary of State and Vice President to two terms in the presidency, involving the Louisiana Purchase and the Lewis and Clark Expedition, Jefferson never lost his love for or his belief in this great country.

He was a farmer, scholar, scientist, diplomat, a leader and a politician.  He was an accomplished horseman who was faithful to his belief in the need for at least two hours of exercise each day.  He was a husband, father, grandfather and great-grandfather; and he loved music, birds and his gardens in Albemarle County, Virginia.  And he was an American.

In the second book, “Lincoln,” Donald writes brilliantly, and truly spans Lincoln’s life and gives one a sense of being there.  Perhaps most striking is how the tide of events carried Lincoln and changed his views (e.g., with respect to the slavery issue alone, from colonization to emancipation).  Also, Donald describes Lincoln as a master, very calculating politician, not unlike the politicians of today.  He was certainly not the folksy backwoods caricature that often is presented, although he used that to his advantage (e.g., to disarm opponents and garner support).

Despite being wonderfully researched, and spreading out the facts for all to see, one gets the sense that what truly made Lincoln “tick” was unknowable, from a deeply personal standpoint.  Having worked on Capitol Hill, my sense is that most senators are that way, possibly because they have been compromised again and again to reach high offices, and to be all things to all people.

Also, it was interesting how Ulysses S. Grant and William Tecumseh Sherman “saved” Lincoln politically, while many of his other generals were either indecisive or utter buffoons.  Lincoln knew that changes were needed, but he was often hesitant to “rock the boat” and make them.  After his reelection in 1864, he seemed much more self-confident, which was cut short by his tragic death.  The reader is left to wonder what he might have accomplished during his second term.

When the book ends somewhat abruptly, one’s interest has been whetted.  It is only too bad that Donald did not do an appraisal of “what might have been.”  There is no question that Lincoln was brilliant, and he was really maturing as a political leader when he was killed.  What a remarkable four years might have followed.  Also, with essentially no protection at all, it is surprising that more leaders of that time were not killed by the John Wilkes Booths of this world.  Lincoln, God love him, was fearless and a true fatalist—or at least that is how Donald depicts him.

One is led to think about Lincoln’s law partner, William Herndon, who was so important in Lincoln’s life, and his thoughts about Lincoln’s life and death.  Also, Grant’s memoirs—which are said to be the finest done by an American president—are wonderful to read, along with books about Reconstruction, the diaries of Lincoln’s two male “secretaries,” etc.

Years ago, I read an article about how one could only understand the Southern “mentality” by appreciating how conquered peoples—or the vanquished—have been able to survive throughout history under the rule of the victors; and Donald’s book sets the scene for that to take place.  Also, one cannot help but be impressed by what a monumental struggle the Civil War represented, and the human carnage that it left as well as the deep scars that remained.  This book is truly fascinating, and Donald provides a brilliant “birds-eye view,” which is well worth reading.

The third book is “A History of the American People” by Johnson.  For all of us whose ancestors came from distant shores, or however we ended up as “Americans,” this book is rich in details, events and trends that have been woven together to describe our history and what it means to be an American.  This reader gained a new sense of pride in what America is and how our history has evolved, and where we are apt to go as a people in the future.

The United States is a melting pot, or a rainbow of different colors, religions and ethnicities, and therein lies its soul, strength, creativity and diversity, and yes tensions.  Johnson’s weaving of minute facts into a tapestry that is “us” deserves to be read and reflected on by all.  We may not agree with each and every observation or conclusion, but we cannot help to be impressed by the sweep of history that Johnson chronicles and how he methodically marshals the facts into a remarkable and coherent whole, of which each of us is an integral part.

I only hated to see this book end—which was true of the other two books as well—and I wished that that I could read about the next 100 years of this “grand experiment” called democracy, but those pages are being written in history with each passing day, month and year.  While it took the arrival of a new millennium for Johnson to share this monumental undertaking with us, let us hope that similar brilliant works are forthcoming.

© 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.amazon.com/Domestic-Thomas-Jefferson-American-Classics/dp/0804417598/ref=cm_cr-mr-title

[3] See http://www.amazon.com/Lincoln-David-Herbert-Donald/dp/068482535X/ref=cm_cr-mr-title

[4] See http://www.amazon.com/History-American-People-Paul-Johnson/dp/0060930349/ref=cm_cr-mr-title