Fisher Investments MarketMinder: Trial by Fire

Originally published by Fisher Investments MarketMinder on: 3/14/2008

Free markets thrive on mistakes. Through trial by fire, market participants become smarter, stronger and better able to deal with the rigors of the marketplace. Yet the knee-jerk reaction by government to any problem (real or perceived) is to revoke privileges and regulate, regulate, regulate—as if we’re witless children in need of constant supervision.

So far, politicians’ protectionist rhetoric has failed to materialize, and the Fed’s recent moves to bolster liquidity in capital markets have been generally helpful without being intrusive. (See our past commentary “Pawning Stocks,” 3/12/2008, for more.) We really haven’t seen anything particularly ridiculous from the Beltway since Sarbanes-Oxley. But like Maude Flanders breaking in on Bernanke and the Fed to shrilly query, “Will someone please think of the children!?” recent headlines shout it’s high time our elected officials saved us. Coupled with Bernanke’s call for action in his Congressional testimony last week, Treasury Secretary Paulson’s comments this morning make harmful, potential regulation a threat worth watching.

Thus far, Paulson has seemed staunchly opposed to excessive government intervention. Today he presented a policy statement and recommendations for action from the President’s Working Group on Financial Markets (PWG). The PWG includes representation from the Treasury Department, the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission and was called upon last August to examine perceived trouble in financial markets. (Presidential committees are always a bit of a charade. Of course they recommend action—they exist expressly to recommend action!) . . . .

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