“Legislate in haste, repent at leisure”

Jerry Bower has a great insight into the Lehman Meltdown.  It's similar to the same problem that we had before 911, when the Clinton administration banned all information exchange between the FBI and the Justice Department.

Debunking Laissez Faire Lehman

Full article and video here

This morning on CNBC Governor John Corzine (D) of New Jersey blamed the current crises in the market on what he called the "laissez faire" mood of regulation which we have seen "over the past decade.” Does he even believe this stuff? Lehman Brothers, like Bear Stearns and others was basically lobotomized by Corzine’s former colleague Eliot Spitzer, who severed communication between the research divisions of these firms from the trading operations. He did this in the name of "conflict of interest." Who’s interest was served by severing the higher brain functions of these firms from the rest of the nervous systems? With one populist fell swoop, allegedly designed to make Wall Street safer for investors, Spitzer made it dumber. 

The most destructive aspect of government control is always its unpredictability. It’s not that the regs are costly (they are, though), it’s that new regs undo prior decisions. Large financial institutions like Lehman Brothers [LEH 0.19    -3.46  (-94.93%)   ]built their balance sheets under certain sets of rules. But then those rules were changed. In the wake of the Enron scandal, numerous regulations were modified in ways that guarded against future attempts to make corporate earnings appear to be higher than they really were. No one seemed to be guarding against the opposite danger; that these new regulations would force companies to report their earnings under the most pessimistic assumptions. It was not, at the time, considered dangerous to force companies to downplay earnings.........

However, when the climate of opinion shifts to panic selling, then all of the rules, with all their draconian penalties and their figurative death penalty for Arthur Anderson, and their literal death penalty for Ken Lay, and the steady stream of perp walks for corporate execs push an already panicky market into full-blown heart-palpitation mode. It’s not just Sarbox, and Spitzer; it’s stuff like FASB 157, which forces firms to "mark to market" even when the market has collapsed. Under political pressure the financial accounting system now takes localized panic pricing and imposes it on the whole system.

These companies built their balance sheets over many decades under what were then the Generally Accepted Accounting Principles. Did we think that changing those rules in a flurry of legislative retribution would not have tremendously disruptive effects on those balance sheets? Did our legislators think about the effects at all? Apparently not.

OBAMA TRIED TO STALL TROOPS IRAQ WITHDRAWAL - Update!

Barack Obama's White House campaign angrily denied (?) Monday a report that he had secretly urged the Iraqis to postpone a deal to withdraw US troops until after November's election.

In the New York Post, conservative Iranian-born columnist Amir Taheri quoted Iraqi Foreign Minister Hoshyar Zebari as saying the Democrat made the demand when he visited Baghdad in July, while publicly demanding an early withdrawal.

"He asked why we were not prepared to delay an agreement until after the US elections and the formation of a new administration in Washington," Zebari said in an interview, according to Taheri.

"However, as an Iraqi, I prefer to have a security agreement that regulates the activities of foreign troops, rather than keeping the matter open," Zebari reportedly said.

The Republican campaign of John McCain seized on the report to accuse Obama of double-speak on Iraq, calling it an "egregious act of political interference by a presidential candidate seeking political advantage overseas."

But Obama's national security spokeswoman Wendy Morigi said Taheri's article bore "as much resemblance to the truth as a McCain campaign commercial."

In fact, Obama had told the Iraqis that they should not rush through a "Strategic Framework Agreement" governing the future of US forces until after President George W. Bush leaves office, she said.

Which is exactly what Amir Taheri quoted Iraqi Foreign Minister Hoshyar Zebari as saying....Obama has now confirmed the report!

Has Obama committed a fatal mistake?  A Crime?

Amir Taheri has reported in todays NY Post that during his trip to Iraq, Sen. Obama attempted to pressure Iraqi Foreign Minister Hoshyar Zebari and others into delaying the removal of US Troops until after the election, and the swearing in of the new President.  He also attempted to persuade the US Military commanders to take the same position, and not recommend sending the troops home. They declined. 

Not only is this in direct opposition to the position that Sen. Obama has consistently pressed (getting the troops out immediately), but may also be a violation of US law.

Interestingly, although the Iraqi's felt that Sen. Obabma had a higher probability of winning the election, they did not trust Sen. Obama.  Maybe we shouldn't either.

Full story here....