Congress’s Confidence Game

by Tim Carney

The economy looks to be getting set up for a hard fall.

High-ranking officials are making bold statements about financial health: posturing that is backed by little substance. While acting in ways they know will do nothing to improve the real situation, they are doing everything they can to get investors to put their money back in the market.

This isn’t another screed about unscrupulous CEOs. The officials in question here – the charlatans trying to make a sow’s ear look like a silk purse – are U.S. Congressmen.

The primary aim of the bills now on Capitol Hill, many lawmakers admit, is to "restore investor confidence." This is a desirable goal, especially if you’re a stock broker or anyone else who stands to benefit from short- to medium-term rises in stock prices.

However, if investors’ confidence is being restored through politics and posturing, and not through any measures that will really make things work better, the government is pulling a WorldCom. That’s exactly what’s happening on Capitol Hill.

The liberals get a pass here. They actually think that Congress can make the market work better than can consumers acting freely. Many Democrats actually believe in socialized markets. But generally free-market Republicans have no excuse. They know the government can’t make any meaningful fixes, yet they want government action to encourage investment.

As an example, take Alabama’s Republican Rep. Spencer Bachus, who sits on the House Financial Services Committee.

Chairman of the Financial Institutions and Consumer Credit subcommittee, Bachus held a hearing March 14 on a bill aimed at freeing up banks from the fetters of regulation. In his opening statement, he said, that his bill "will allow banks and other depository institutions to devote more resources to the business of lending to consumers and less to the bureaucratic maze of compliance with outdated and unneeded regulations."

Bachus went on to argue that, "Reducing the regulatory burden on financial institutions lowers the cost of credit and will help our economy as it strives to emerge from recession."

Bachus is a smart man. He realizes that bank regulations are not the only laws that make everyone poorer. He grasps entirely that government almost always exacerbates problems rather than solving them.

Yet now, after WorldCom, he’s willing to stick the clumsy fingers of government right into the complex gears of the stock market. "There cannot be any sacred cows," he said. "We have to do everything we can to restore investor confidence."

That means Bachus is willing to pass regulations he understands will raise the costs of business and may fail to prevent future shenanigans, as long as their passage and implementation make investors believe the new rules will make things better. If investors believe that, they’ll put their money back in the market, the Dow will go up.

This sounds familiar, this effort to drive dollars into the stock market although there’s no there there. Bachus is hardly alone here. Almost every Republican in this town is looking for ways to "restore investor confidence." Bachus didn’t invent this sort of scam. Neither did WorldCom. The confidence game has been around for centuries. It has found a good home in Washington.

July 15, 2002

Tim Carney [send him mail] is a reporter for the Evans-Novak Political Report.

Copyright © 2002 LewRockwell.com