Tuesday, April 01, 2008

Soup of the Day

Treasury Secretary Paulson's fun-filled Blueprint for a Modernized Regulatory Structure proposes an “optimal” regulatory system that would populate the world with its offspring: FIDIs, PFRA, CBRA, FFSPs, and so forth. As the debate over financial services regulation drags on, everyone now gets to toss around these new acronyms along with the many already in use, thus congealing our so-called regulatory alphabet soup into a big old soggy pasta salad.

Major regulatory overhaul being the stuff of distant dreams, the only new agency Paulson might be serious about creating is the MOC (Mortgage Origination Commission), listed as one of the Blueprint’s “short-term” goals. Through the MOC, federal officials would oversee state licensing and regulation of folks involved in the mortgage origination process. Which inspires me to propose the following acronym: HINFAIFWWTODIIOTSD, or Hey, Inventing New Federal Agencies is Fun When We’re the Ones Doing It Instead of Those Silly Democrats.

It’s odd to see this free market-loving administration dream up a new agency to regulate behavior that “market discipline” (normally an oxymoron here) may belatedly curb on its own. After all, Wall Street is facing the true risks of securitizing crappy loans, rating agencies are unlikely to bestow happy ratings on crappy mortgage-backed securities, bond insurers can longer backstop this crap, and once-beguiled MBS buyers are ready to beat the crap out of everyone involved.

So won't it be pretty tough for rotten mortgages to find shiny new securitized products they can crawl into and contaminate? And, finding themselves unwanted, might these substandard loans not just slither away and leave us all alone?

Gosh, it’s not like me to be so optimistic. Especially on a day when Reuters cheerily reported that UBS's $19 billion subprime-related writedown had spurred a “writedown relief rally” on the FTSE, and this wasn’t an April Fool’s spoof.

No comments: