One of the sadder categories in the history of human misfortunes is the list of those things that are obvious, but wrong. By definition, if something is obvious, most people agree with it, and thus, it is likely to win the day -- but lose the verdict of history. The Earth is flat -- obviously. The sun rotates around the Earth -- obviously. What we need is a financial systemic-risk regulator who can spot an impending systemic financial risk -- and stop it. Obviously?
Unfortunately, save for a few Republican senators and outside experts, it is obvious to most of official Washington that, as Sen. Christopher J. Dodd's Banking Committee gets ready to mark up the financial regulation bill, only the form that a financial systemic-risk regulator should take is seriously in dispute.
What could be more obvious than the lamentable fact that the economic crisis occurred because our regulatory mechanisms failed in 2007-08 to spot the impending financial crash? And that the failure occurred because no one was looking at the entire financial system -- only individual pieces of it? If some regulatory body had been looking at the entire system, the danger could have been spotted and corrected. So, obviously we need a systemic-risk regulator.
But what do we mean by systemic? All American banks? All American financial transactions? All economic activity in America? No, in a globalized economy, the system in question is the entirety of global financial activity -- and all other economic activity that might affect financial decisions. In other words, the system is the entire global economy. My, my, that is a lot even for a building full of Ivy League economists to fully comprehend. If they could, they would be in business making trillions of dollars.
For instance, Iceland had a systemic crisis last year because some loan officers in Florida and elsewhere authorized loans to unqualified borrowers, and then thousands of such loans were bundled together by Wall Street investment banks and sold as reliable investments to banks all over the world -- thus starting a process that undermined Icelandic banks.
The next systemic financial crisis might happen because the Chinese Communist Party decides -- for geopolitical rather than financial reasons -- to order the immediate sale of all China's U.S. Treasury notes. Or perhaps it will be caused by Britain getting into -- and losing -- a war with Argentina over oil in the Falkland Islands that results in the collapse of the British pound, which reverberates around the financial world.
Blankley, who had been suffering from stomach cancer, died Saturday night at Sibley Memorial Hospital in Washington, his wife, Lynda Davis, said Sunday.
In his long career as a political operative and pundit, his most visible role was as a spokesman for and adviser to Gingrich from 1990 to 1997. Gingrich became House Speaker when Republicans took control of the U.S. House of Representatives following the 1994 midterm elections.