The White House proposes the most extensive changes to our financial regulatory structure in 75 years under the guise of addressing the "root causes" of last year's financial crisis, yet puts out a report that fails to mention any politically inconvenient facts surrounding that crisis, and spends only 1 paragraph of the 85 page report on the actual root cause.  Like most of Geithner's other efforts -- TARP 1.5, AIG, PPIP -- it makes up in political hubris what it lacks in seriousness.

In lieu of the truth, the whole truth and nothing but the truth, we get pablum about "supervision" and "regulation" and "consumer protection", along with a core set of proposals that only Washington could love:  new layers of bureaucracy (to solve turf disputes and tackle illusory problems), convoluted behavioral rules in the form of ethical codes, a brand spanking new agency with an amorphous "feel good" paternalistic mandate, and the centralizion of power in the two least accountable and transparent institutions (Treasury and the Fed).  Moreover, it is stunningly ignorant of market dynamics and places more power and more faith in regulators that have failed in the past with their existing tools.  Fool me once, shame on you ... 

Why are Fannie and Freddie relegated to a single paragraph placeholder, though they represented 75% of the residential mortgage market at the root to crisis?  Why no word about the systematic purchase by Fannie Mae and Freddie Mac of synthetic subprime / Alt-A synthetic mortgage securities to promote the mantra of "affordable housing" and the active encouragement of shaky insurance to support these securities?  Hmmm?  Perhaps that is because WH Chief of Staff Rahm Emanuel sat on the board of Freddie Mac and another WH advisor Holbrooke on AIG (key culprits in this mess), which pumped up the sub-prime businesses of the Sandlers (Golden West) and Pritzkers (Superior), two major WH donors? 

One of the opening premises of the report is that financial institutions were "too reliant" on bond ratings.  Yes, but whose fault was that?  What the report does not say is these bond ratings were issued by three SEC-sanctioned oligopolists, and that our entire current regulatory infrastructure is built upon mandatory recognition of these ratings for purposes of calculating regulatory capital levels.  Yes, mandatory regulatory tie do tend to make you reliant.  And why were there so many ($2T) of these mislabeled securities?  Perhaps a government-sponsored secondary market and assumption of the full faith and credit of the US behind wobbly paper?  Pretty obvious systemic flaw wouldn't you say?  Yet absolutley no mention of this in the report.  Was this because CEO (Franklin Raines), a friend of the WH, playing with another big WH donor, Goldman Sachs, got caught cooking the books to make his $100M+ payday on the taxpayer nickle?  

Well the report doesn't mention any of this because that would mean viewing the crisis as largely a function of a government program gone awry versus the more convenient pro-big government meme:  those darn capitalists at it again.

The other farcical "root cause" is the "pervasive failures in consumer protection" -- as if people were buying $300,000 homes in the same manner that they bought mislabeled, two week old eggs, and should just be given homeownership with no expectation of due diligence.  Yes, people got in to bad loans, took out more than they could safely afford, and bought in at the height of a real estate bubble assuming that prices would continue to rise.  But what of the 90%+ who are still paying their mortgages on time?   What protection do we get?   And how much of the problem was really caused by inappropriate loans that banks and AGs have not already restructured?  Perhaps these were loans that could not have been paid under any circumstances and people were caught in a government policy-driven real estate bubble for which no amount of "consumer protection" would have provided immunity. 

But there is nothing Washington likes better than tackling illusory problems, because by definition there is no accountability. 

Fortunately, even a broken clock is right twice a day, so perhaps there will be some good that comes out of some of the proposed changes.  If that is that is the case, we can rest assured that those salutary elements were inadvertent.  More to come as I look for silver linings.