Inmates Redesign The Asylum- Barney Frank & Chris Dodd's Bogus New Financial Regulatory Vision

I recently wrote this post discussing the stealth approach that House and Senate Democrats are taking with their financial sector regulatory "reform" bills.

What I didn't adequately touch on in that piece is the very perverse prospect of two of the major architects of the recent US financial services sector's crisis claiming to be capable of redesigning regulatory and related elements to prevent future occurrences of such problems.

Let's recall the facts. Barney Frank personally drove Fannie Mae and Freddie Mac to purchase higher proportions of option ARM, low-doc, no-doc and, generally, poorer-quality mortgages from the private sector. Chris Dodd and fellow Democratic Senator and Finance Committee member Kent Conrad both accepted sweetheart loans from Countrywide, Angelo Mozillo's mortgage finance company, while failing to adequately supervise and rein in the growth of poor quality, often improperly documented mortgage loans. Both also failed to act on Bush administration concerns regarding the explosive growth of Fannie Mae and Freddie Mac through guarantees of bonds backed by the poor quality loans.

Oh, and, by the way, Barney Frank, to my knowledge, has never addressed the contetion that a person with whom he was romantically involved was a lobbyist involved with Fannie Mae. I'm sure it's irrelevant.

Now, these Congressional worthies would have us believe that, having been instrumental in wrecking the residential finance sector and, by extension, the entire US finance sector, they are in a position to tell us how to organize, supervise and regulate the sector in the future to avoid similar calamities.

Nothing could be further from the truth. In fact, they overlook the rather simpler, more obvious solution, i.e., fewer government guarantees and less inept regulation.

If Fed, FDIC, OCC and other regulators had done their job in the first place, Frank's and Dodd's judgemental errors and political favoritism would have been stopped in their tracks. Unfortunately, our vast, overmanned and overly-complicated bank regulatory system failed in its primary mission.

Shouldn't that have triggered a more cold-eyed look at how the current players failed in their regulatory oversight jobs, rather than simply layering on more and more complicated rules, classifications and regulations?

How many people believe that, if someone failed to do their job in the first place, the right solution is to give them increased responsibilities and hope for a better outcome next time around?

Well, evidently, at least two- Frank and Dodd.