Low-Level Economic Literacy

James Glassman, the Senior Economist at J.P. Morgan Chase said what dares not to be said in a memo to clients yesterday...in a nutshell, the people writing the legislation for financial "reform" are economic illiterates.

Here's the whole memo:


JPMorgan Chase Analyst Takes Aim At U.S. Senators -

Here's one of several money shots:

􏰀 The low level of economic literacy exposed in last week’s hearings before the Senate’s Permanent Subcommittee on Investigations offered an unnerving insight into much that is driving the financial reform effort.

He goes on to opine, correctly, that the proposed legislation doesn't even address the core problems that were exposed by the most recent recession.  We've been saying for awhile that if you don't address Fannie and Freddie, you are ignoring the central cause of the meltdown.  Just like the healthcare "reform" bill didn't address tort reform or increase market competitiveness, this monstrosity of legislation will do little more than hamper small business even further.

In a similar vein, Meredith Whitney, (the Dark Princess who forecast the housing crash correctly) wrote in a piece in the Wall Street Journal yesterday that: 

 Proposed regulatory reform—specifically interest-rate caps and interchange fees—will merely exacerbate the cycle of credit contraction plaguing small businesses.

If banks are not allowed to effectively price for risk, they will not take the risk. Right now we need banks, and particularly community banks, more than ever to step in and provide liquidity to small businesses. Interest-rate caps and interchange fees will more likely drive consumer credit out of the market and many community banks out of business.

And all of this wonderful torrent of regulation, legislation and outright takeover is being done by people who, well to put it mildly, aren't very bright.  I am reminded of the line from a Gordon Lightfoot song: "think about the fool who by his virtue can be found in a most unusual situation playing jester to the clown."  You look at the Senate hearings, whether it is about terrorism, Goldman Sachs, or an oil spill and you shudder.  We DO need some change we can believe in.