From Kevin Hassett, writing for Bloomberg News, comes the metaphor that aptly explains the consequences of Obama's proposed regulatory reform law.
The law would turn "Goldman Sachs Group and a few other financial giants into organizations that resemble AT&T in the 1950s," he writes.
In effect, firms labeled too big to fail (TBTF) would become utilities, closely regulated but ultimately guaranteed by the government. In return for what Hassett describes as "bureaucratic meddling" they can keep their profits but socialize their losses through an implicit public guarantee.
The Obama proposals make it clear that the fault line in our politics is not the public sector vs. private business. Rather, it is big government, big labor, and big business vs. the taxpayer and small- or medium-sized businesses.
Ultimately, the regulatory reform bill will make the taxpayer responsible for the losses of the major firms but will, at the same time, empower federal regulators to monitor and control much of their activity — just as they do with electric utility companies.
Against this backdrop of public control of TBTF firms is the obvious fact that, through massive campaign contributions, these very same firms that are controlled by the bureaucrats can, in turn, control the bureaucrats through campaign contributions.
By showering candidates with their largesse, they can buy their way out of the most onerous of regulations and profit enormously from their TBTF designation.
The losers are small and medium-sized businesses which haven't the government guarantee and must pay more for their capital, minimizing their profits. Inevitably, the TBTF firms will leverage their advantage to takeover their smaller rivals and we will end up with a few large regulated TBTF companies dominating the capital landscape.
When these new giants win, their gains will largely accrue only to their investors and employees. Their investment victories are likely to stem from trading profits and not from underlying investment in the kind of innovative, job creating companies we need to encourage.
Federal regulation will limit their risk-taking and will starve these new growing firms of capital. But when they lose, the taxpayer will suffer since we will be asked to bail out or "rescue" failing firms since they are, after all, too big to fail.
In this zero sum game, the more the regulators from big government and the bankers from big business win, the more small firms and individual tax payers lose. This is the Obama future.
It is the ultimate myth that this regulatory reform bill was introduced to curb the abuses of Goldman Sachs. In fact, it was created to enable them. The day in the dock of the civil lawsuit filed against Goldman by the SEC is a small price to pay for the ultimate empowerment of a federal guarantee against losses.
If Goldman has to pose as the victim in order to inherit the market, they are quite willing to do so.
Any impartial examination of this bill shows how wise Goldman was to be the top donor to Obama and one of the top contributors to Senator Chris Dodd. This reform measure is their panacea.
We hope that Republican Senators act like Republicans and either kill the regulatory reform or force major changes.
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