The Campaign Spot

Obama Administration Finds It Can’t Repeal Law of Unintended Consequences

See if you can detect the common theme running through these news items . . .

Infrastructure projects that the stimulus was supposed to jump-start may be held up because of the EPA’s new regulations on reviewing CO2 emissions.

An effort to regulate financial institutions more tightly may send vast quantities of capital overseas:

Plan to Expand Financial Oversight May Add New Risks

The Obama administration’s plan for a sweeping expansion of financial regulations could have unintended consequences that increase the very hazards that these changes are meant to prevent.

Financial experts say the perception that the government will backstop certain losses will actually encourage some firms to take on even greater risks and grow perilously large. While some financial instruments will come under tighter control, others will remain only loosely regulated, creating what some experts say are new loopholes. Still others say the regulation could drive money into questionable investments, shadowy new markets and lightly regulated corners of the globe.

Pumping out massive amounts of money to provide relief to “troubled homeowners” has prompted folks to switch from overstating their income to understating their income:

Loan modification subject to growing fraud

. . . But an increasing number of owners are also trying to pull the wool over their lenders’ eyes. In some cases, they are lying in an effort to save their homes from foreclosure. But in other instances, they are trying to convince lenders to grant them new, more favorable loans they don’t really deserve.

Frank Sillman, managing partner at Fortace, a Los Angeles-based fraud pursuit and recovery company, has seen a marked increase in loan-modification fraud, which could be described as just the opposite of the loan-approval fraud committed by many people to obtain mortgages for which they didn’t really qualify.

“First, they overstated their incomes,” Sillman says. “Now they are understating them.”

An effort to placate the unions has brought the hammer down on pear growers in the Northwest.

Exports of Northwest pears to Mexico have ground to a halt because of a new tariff.
Mexico last week imposed tariffs of 20 percent on pears, cherries, apricots, Christmas trees, frozen potatoes and other products. The tariffs are in retaliation for the U.S. ending a pilot program that allowed some Mexican trucks to transport goods in the U.S. as part of the North American Free Trade Agreement.
The American Farm Bureau Federation and National Potato Council this week urged Congress and the Obama administration to resolve the $2.4 billion trade dispute.

And, of course, we all saw how the legislative temper tantrum over the AIG bonus made many companies think twice about partaking in either TARP funds or Tim Geithner’s plan to save the banks.

Obama’s team can try to undo a lot of legislation passed under the Bush administration, but they can’t repeal the Law of Unintended Consequences. Each massive new effort on the government’s part has some massive, unforeseen effect that is often counterproductive to the stated aim.

This doesn’t mean that all government action is pointless, but that it ought to be carefully and slowly considered, incremental, and undertaken with a certain humility – all phenomena that have been in short supply in Washington in recent months.

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