Big Brother
President Obama is now proposing tougher regulations on the country’s biggest banks, including giving the government power to limit the size of these organizations and their ability to make high-risk trades. The proposal would prevent banks that take federally insured deposits or have the right to borrow from the Fed from investing in hedge funds or private equity firms. It would also expand the reach of an existing law forbidding banks from acquiring another bank if the deal would give it more than 10% of the nation’s insured deposits. Obama’s argument centers on the fact that these risky behaviors put the entire economy at risk.

So what? Is the President running all businesses now? First it was the automotive industry when Obama forced the head of GM to resign. Then it was healthcare with the system wide reform he’s proposing. And now banking. What’s next? Soon he’ll be telling us how we should spend our money, what we can search for on the Internet, and what we can and can’t watch on TV. It’s a slippery slope. “Big Brother” could be right around the corner if we don’t put a stop to it.

Is the financial system in this country in serious trouble? Without a doubt. But before we can try to fix it, we need to figure out how we got here. Banks today are all or nothing: they either lend money to everybody or they lend money to no one. Banks are screwed up because they issued mortgages to people who weren’t qualified, and they gave people credit they didn’t deserve. If everybody in this country could make his or her mortgage payments, we wouldn’t have a problem! But the solution isn’t to regulate how banks invest their money – it’s to regulate how they lend their money. The two things are completely separate.

Banks have to give returns and protect their money. Nobody should be able to go in and regulate how banks have to invest. It’s not that hard, people. It all comes down to basic economics. As late economist and winner of the Nobel Memorial Prize in Economics Milton Friedman once said,

The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that’s why it’s so essential to preserving individual freedom.

We must regulate how banks issue loans and mortgages if we want to get out of this financial crisis. Do you really want the government taking over the independence of our banking system?

LINKS:
MSNBC – Obama seeks tighter limits on banks’ reach
Wall Street Journal – New Bank Rules Sink Stocks