Peter Schiff: New Financial Regs Will Likely Increase Severity of Next Crisis
In a speech to Wall Street today, President Obama talked of a "failure of responsibility" in Washington and on Wall Street. But the financial sector is the most regulated part of the economy, so surely responsibility lies mostly with Washington. It was the federal government that created deposit insurance, which removed risk (and therefore caution) from bank deposits. It was also the feds that created "too big to fail," our new system of private profits and socialized losses. Most importantly, it was federal taxes and regulations that undermined our productive capacity, rendering us weak in the face of financial shocks.
In this speech castigating private greed, no mention was made of Fannie, Freddie, or the FHA's role in encouraging sub-prime loans, nor of the Fed's ultra-low interest rates which made the mortgage "teaser rate" possible. The maligned "unregulated derivatives" market was largely based on exposure to these government-backed loans.
Obama claims he wants "common sense rules" to be put in place. Yet, his reform proposal defies common sense.