Tags: Isaac | Regulation | Scared | Death

Former FDIC Head Isaac: Excess Regulation Has Country 'Scared to Death'

By    |   Wednesday, 14 Mar 2012 02:00 PM

Excessive regulations are preventing the labor market from recovering, as companies are unable to invest and hire while they fret over compliance, says William M. Isaac, former chairman of the Federal Deposit Insurance Corp. (FDIC).

New regulations, including those outlined in the Dodd-Frank financial-overhaul legislation as well as the Patient Protection and Affordable Care Act, are also preventing smaller banks from lending to smaller businesses, which further prevents job-creating endeavors from getting off the ground.

"The Obamacare bill, the Dodd-Frank bill, all of these things could have waited until another day. What we really needed to do is focus on the economy and how to create jobs," Isaac told Newsmax.TV in an exclusive interview.

"I think we are all scared to death about the future," said Isaac, who headed the FDIC during the banking crisis of the 1980s, serving under Presidents Jimmy Carter and Ronald Reagan from 1978 through 1985.  

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"I don't think we have any faith in the political system right now, and we really need to work on trying to get confidence restored in the economy so people can make long-term investment decisions," said Isaac, now senior managing director of FTI Consulting.

Uncertainty and poor policy planning made the recent financial crisis much worse than it should have been.

The Bush administration hastily intervened to bail out institutions like Fannie Mae, Freddie Mac or AIG while letting others like Lehman Brothers fail, thus creating turmoil.

President Barack Obama followed up with too many regulations, both leaders fueling a financial crisis that was much worse than it should have been.

"We had a far more serious problem in the financial system in the 1980s, when we lost 3,000 banks and thrifts compared to only 400 this time around. And yet we didn't have this crisis of confidence and the panic that almost brought the whole world financial system down," Isaac says.

"I think a lot of it had to do with very bad accounting policies and regulatory policies leading up to the crisis and very bad regulatory supervision of institutions and ratings agencies that weren't doing their jobs and then a new administration that really bungled it once the crisis started." 

Editor's Note: Google Banned This Video But You Can Watch it Here

To get the country back on firmer footing and see more sustained hiring, the Dodd-Frank and the Patient Protection and Affordable Care Act need to go.

Regulation needs to be smarter and less heavy-handed, as more market-driven policies could ensure financial institutions don't engage in excessive risk-taking that got the country into its current mess in the first place.

Take banking as an example.

"What we are calling for is requiring banks to go to the market on a regular basis to issue long-term debt, both subordinated and senior debt, and by having to go the market on a regular basis — no less often than annually — and prove themselves to the debt markets, we're going to bring more market-place discipline to bear on them," Isaac says.

"If they are taking more risk, the interest rate on their debt is going to go up."

Furthermore, tax overhaul needs to follow suit.

"In my view, we need a fairer tax code, a tax code that reduces marginal rates and eliminates the deductions that a lot of people with money take advantage of. I think it ought to be a flatter, fairer tax code along the lines what Simpson-Bowles suggested," referring to President Obama's National Commission on Fiscal Responsibility and Reform, headed by former Senators Alan Simpson and Erskine Bowles.

Loose monetary policies need readdressing also.

Federal Reserve Chairman Ben Bernanke has said that interest rates will stay very low likely through the end of 2014.

Low interest punish savers, especially retirees, who are earning returns that fail to meet inflation rates.

"I think the only way we are going to do it is to have a regime change in Washington. We really need to send new leaders to Washington who are committed to getting this country back on the right track."

Editor's Note: Google Banned This Video But You Can Watch it Here



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