posted on Jan, 4 2012 @ 11:48 AM
"Regulation" is not necessarily a four-letter word.
The Federal government has a duty to encourage fair trade, not just between itself and other nations, but between the people in interstate commerce.
The key word there is to encourage, not to control. A regulation may do either or both.
There is nothing wrong, and much right, about government verifying accuracy of gasoline pumps, requiring clear labeling of food ingredients, demanding
compliance with legal contractual obligations, or even setting standards of quality. There is, however, much wrong and little right with enforcing
business decisions which should be market-driven. Those are the regulations that need to be checked.
In the case of banks, the amount of power they hold over the general economy, by virtue of their very existence, is awesome. A bank can decide
arbitrarily who gets a loan and therefore who can own a home or who can start a business. As long as this decision is objective, i.e. based on hard
facts and observations, it is a good thing. But when it becomes subjective, i.e. based on personal opinion and agenda, then it is both a bad and
dangerous thing. Regulation is the best method to control such power and transfer it from a financial institution accountable to no one but its
stockholders to a government that is (theoretically) accountable to the general public.
But regulation can easily go too far. If the intent of regulation is to provide a means of ensuring fairness and equality, then the obviously best
method to do this is to place the power to regulate in the hands of those most accountable to the public. In the case of the banking industry above,
this would be the Federal government. But in the case of small business, the most effective organization to do this is the people themselves.
This is the theory behind the 'free market': not total absolution from any requirement for fair and equitable behavior. Who can better control the
actions of the local business than the local people? They have direct and immediate control, via their spending habits, on whether or not that
business succeeds or fails. Customers also have the ability to offer feedback and even negotiate with businesses. There may be a conventional wisdom
that a business has fast and fixed rules - this may even be true for larger businesses where control is centralized in another area - but the fact is
that a business that is not responsive to the needs and wishes of its customer base will fail. Don't like the price? You have every right to make an
offer, but of course the business has every right to refuse it. If you refuse to pay the price, the business loses a sale and you lose the purchase.
If the business accepts the offer, it makes a profit and you get the price you wanted. There is incentive there for both parties to negotiate, as long
as the final negotiation is in the best interests of both.
So what does this have to do with regulation of banks? Regulating leverage ratios is fine, as it is an internal operation by the bank that is
invisible to most customers, but regulating such things as extra charges, obvious to customers, is not in the best interests of the economy. We just
recently saw customers change the mind of BoA on this very thing, when they were deciding to charge for debit card access to funds. Regulations that
require all loans to be disclosed in a standard fashion is a good thing, as it promotes fairness and equality where the average person may not be able
to understand all the fine print and deceptive wording. Regulations that define what an interest rate or repayment schedule must be are better left
between the customer and the bank.
Point is, deregulation is not a good thing by itself, nor is over-regulation. There's a middle ground where the economy can run wide open and yet
people still can be protected against predatory lending.