Let's Try a Little Positivity for a Change, Huh?

Each day the business press churns out a vast amount of copy. There's probably more written about business issues than any other single subject beyond politics. This makes sense, given that advertisers are hoping to reach the most affluent among us. They're more willing to underwrite news they believe the affluent care about. What is more surprising is how limited the range of tone is in most of these opinion, news or newsy opinion pieces. A very large chunk of the business journalism out there falls into two categories. The first decries the incompetency of regulators and all of the unintended consequences their rules impose on the marketplace. The other camp are the conspiracy theorists, who take the completely opposite view. The regulators and lawmakers are so intelligent and devious that they are able to achieve ulterior goals in addition to the ostensible purpose of legislation. I simply can't understand, in a country with such abundance, where such a dim view of human intentions and capabilities comes from. Yes, we hit a rough patch over the past several years, but take a look around. We built a highly functioning society before that.

This piece by a "local lender" in AOL's Patch assumes that the Dodd-Frank's requirements that banks get verification of a borrowers income means that Congress is surreptitiously attempting to turn banks into IRS agents. Instead of saying that these rules are problematic for excluding people's whose income can't easily be verified, he tosses out a conspiracy theory that flies in the face of all common sense.

This article in The New York Post is another example of baseless bloviating that the financial services industry engages in each day in the press. In lists platitudes about how Dodd-Frank kills lending institutions' abilityto do their job, without proving how its happening. I'm totally open to this possibility. In fact I'm sure that increased regulations will dampen lending. Of course, it's a question of how and to what it extent this occurs, and whether we're receiving compensation through decreased systematic risk. But these commentators aren't interested in studying problems and producing solutions. They're interested in condemning boogeymen and fanning people's preconceived notions of what's wrong with regulation and government.

These are just two examples, but I read similar writing every day. I try to keep an open mind and consider all positions. I feel that a journalist has a responsibility not to disinterestedness or impartiality but to keeping an open mind. However, so much writing out there takes the form of screed without evidence to back it up.

TV Business News is Rarely This Entertaining

One of the more delightful consequences of easily recorded and regurgitated video content is the ability to make fun of people for stuff they got wrong. Or really really wrong. It's Jon Stewart's bread and butter. But it's a pretty easy thing to do at home too, and oftentimes Youtubers will get in on the party.

Peter Schiff, money manager and 2010 U.S. Senate candidate (Connecticut Republican Primary looser), was right about some stuff, as you can see. Schiff has since used the fame gained from such a prediction to call for the scaling back of regulations on the financial system and other libertarian policies. Schiff believes that it was too much government intervention in the markets that that precipitated the housing bubble, specifically through maintaining interest rates artificially low.

There are those who favor a more active government who also predicted the crash, however. The problem with lionizing guys like these is that they're often wrong too. Anybody who tries to predict the behavior of something as complex as the global economy always will be.

That video is still pretty hilarious/terrifying.

MF Global Reignites Debate on Regulation

In reaction to the meltdown of MF Global, Jeff Carter questions whether the Sarbanes Oxley and Dodd-Frank laws should have prevented the kind of accounting gimmicks that allowed the true health of the firm to go undetected. Carter argues that because accounting decisions are almost always to some degree subjective, fraud can never be eliminated from the system regardless of how stringent regulation is.

For instance, The Wall Street Journal is reporting that MF Global engaged in extensive "window dressing" of their financial statements. This is a practice whereby firms undertake financial transactions specifically to alter the picture presented to shareholders and regulators through its financial statements. In MF Global's case, the firm temporarily lowered its debt loads, and then re-levered after filing. This sort of behavior isn't illegal, and if it were made illegal, it'd be impossible to really prove in a court of law.

Carter concludes:

The best antidote to fraud is transparency, and the market destroying the company once the fraud is found out. The only way to be anticipatory is to set up transparent market structures that force companies to shed sunlight on their activities. The market is the greatest truth detector there is.

I couldn't agree more. But then again investors like Carter and Journalists like me are plain suckers for transparency. We thrive on information. Managers of companies don't necessarily want to show their hands all the time. There are increased costs for a company to report information to regulators, and shareholders can be harmed if a disclosure gives away some kind of competitive advantage.

Of course there is a limit to how much transparency can be practically added to the system. For obvious reasons, there must be restrictions to what the government can legitimately claim to need to know about a company or individual. Such concerns have recently been raised by Republicans about the Office of Financial Research. A bigger concern for advocates of transparency should be that at a certain point, more companies will simply eschew going public if the burdens of disclosure get too onerous. That will do nothing to promote financial stability or economic growth.

The problem with sussing all these issues out is that commercial lobbying groups tend to protest any new regulations. This makes it difficult for fair minded citizens, who believe in finding the right balance of regulations, to make an informed decision. Many on the left reflexively dismiss concerns raised by lobbying groups because of a kind of "boy who cries wolf" dynamic.