The event was a good mix of content, conversation, and social networking. The conference, and my conversations there left me with a number of distinct take-aways. These were the clear messages of the conference and were certainly the themes amplified in the conversations of the attendees and presenters:
- Government regulation is bad. The amassed entrepreneurs seemed convinced that new regulation – of any kind – would deter business growth. Special ire and concern was directed at Dodd-Frank, and the proposed new regulation of financial services.
- Free enterprise – unrestrained commerce, I took this to mean – is good. Beyond good, it is one of the defining characteristics of our American democracy that we must fight to preserve. And, in the collective opinion, there was a distinct sense of urgency about this coming election and its importance to preserving American free enterprise.
- Businesses, to grow and survive, need access to capital. Excessive government regulation threatens this access. Uncertainty regarding new regulation is causing banks to cease their lending.
Confessed: I am a moderate.
My experience suggests that there are very few absolutes: that black and white are rarely, if ever, encountered; that life is a wonderful mix of grey. I am increasingly disenchanted – dare I say, disgusted? – by the polarization of the national political debate; the blatant hubris on both sides, each believing with such certitude that their version of the truth is immutably correct.
This morning, as serendipity would have it, I heard a re-broadcast of Krista Tippett's interview with physicist, mathematician, cosmologist and novelist Janna Levin on her NPR program On Being. I highly recommend it to you. It reminded me of how “grey” human life is.
And, we need regulation to protect citizens from the unbridled profit-seeking of big business. This is our lesson from the previous decade, no? This is the poorly articulated battle cry of the Occupy Movement that slowly fizzles in our cities, no?
Unbridled government is no more the answer than unbridled business enterprise.
Confessed: I am an academic.
I strive to be a life-long learner. I want to fully understand an issue; to explore all of its facets and to reach my own conclusions based on my convictions, new insights, and past experiences. My education has taught me to question hyperbolic and absolute statements.
And so on to the question of Dodd-Frank and the excessive regulation of financial services – the excessive bridling of business capital provided to American business: this much I recommend: read the Act. Read Dodd-Frank in the light of the recent housing market and broader financial services collapse. My read – and my experience – suggest the following:
- Residential mortgage lending is – by far – the largest source of collateralized lending in this country.
- Residential mortgage lending is (certainly was) the funding source of choice for American entrepreneurs. It provided funds to my own entrepreneurial efforts.
- With the fall of housing and the dramatic contraction of mortgage credit, concern over continued access to capital for American entrepreneurs is warranted.
- The Dodd-Frank Act seeks to constrain government-backed residential mortgage lending through the proscription of “qualified residential mortgages.” These carefully and rather narrowly defined mortgages look very like the mortgages of our parents: large down-payments and good credit requirements. And only these qualified mortgages could be backed (or guaranteed) by a federal entity – assuming, of course, that any federal entity survives from the carcasses of Fannie Mae or Freddie Mac. Constraining the government’s – and by extension the taxpayers’ – exposure to this risk is warranted, no?
- The Act’s careful constraint of the government’s “foot-print” in residential mortgage lending leaves a broad and open space for private capital to enter and innovate – as competitive market dynamics require. Naysayers will cry that such credit innovation outside of the carefully defined space will not occur – will not occur because the retained capital requirements for these “non-qualified” mortgages is too high, is cost-prohibitive. Ensuring that private enterprise is reserving sufficient capital – is pricing the risk of the financial instrument correctly – and is therefore funded sufficiently to bear the downtown without a “too-big to fail bail-out” is warranted, no?
- As private capital innovates and enters the market – as they eventually will; profit motivation and competition will drive them there – access to capital will get more expense, most certainly.
Our American democracy is an amazing and wonderful thing. We must fight to preserve it; to keep it in our collective hands, where it belongs. I am convinced that we are each obligated to participate in its keeping, and that its keeping is only accomplished through considered, informed, and measured debate.