19 June 2009

Honorable Senator Warner:

Honorable Senator Webb:

Honorable Congressman Wittman:

I am writing to you in response to the Fox News article where Treasury Secretary Timothy Geithner recommended that the Federal Reserve develop a centralized regulatory body to govern banks and other financial institutions (Geithner Defends Plan to Overhaul Financial Regulation, 18 June 2009).  Mr. Geithner claimed that the current regulatory framework is insufficient to monitor and address market risks specifically because no single regulator was given that task.  This excuse minimizes the fact that this country is based upon a decentralized and capitalistic system that abhors singular control.

The current financial crisis stems from the cumulative effect of providing home mortgages to customers that were – in reality – unqualified to receive the line of credit.  For far too long the mantra has been that everyone “deserved” to own a house and that owning a house was some type of “basic human right.”  The truth is that taking out a mortgage, just like getting a drivers license, is a privilege that must be earned.  When the economic conditions finally began to reverse themselves – and which was predicted for quite a while – the house of cards came tumbling down.  We Americans are now paying for that immature perspective.

The fundamental problem is that it was government regulation that significantly contributed to the belief that everyone was “owed” a house of his or her own regardless of affordability.  Since it was mandated policy backed by legislation that Freddy Mac and Fanny Mae provide mortgages to borderline credit risks – specifically targeting minorities in a “feel good” affirmative action effort – the true culprit is over-regulation.  Granting additional centralized power to regulate what should be a self-regulated competitive marketplace – i.e., trying to centrally manage market bets – will only lead to more wild swings within that system.  No economy will react predictably when altruism dictates the rationale of a centralized regulatory body politically pressured to accept arbitrary constraints.

This current effort to gain centralized control over the American economy is truly scary for a number of reasons.  As outlined in the book Liberal Fascism by Jonah Goldberg, the nationalization of a country’s industrial and financial systems is the primary signature of a fascist government.  Whereas many political pundits are pointing to the current efforts to enact sweeping health care reform as a step toward socialism I am more concerned that these regulatory recommendations may be elements of much more scary form of government.

Very sincerely,

James Hull