With the Fed’s move earlier this week to further loosen monetary policy (even with virtually free money being circulated via low interest rates), there has been an uptick in concerns about deflation. And these are certainly not without merit. But perhaps more critical to the marketplace right now is uncertainty. I just spent the last three days in New York and spoke with a number of people who all had a unified message: uncertainty is killing us.
From a private equity analyst to a small business consultant to a international trade executive to an investment bank vice president, the theme of uncertainty was all anyone could talk about. And it makes sense. The Dodd-Frank Act hasn’t clarified much. It didn’t deal with the causes of the crisis. It leaves hundreds of rules to be determined by the regulatory agencies. And it puts the people who missed the last one in charge of stopping the next one. Plus, with the bill increasing the power of government to restrict business practices while expanding regulatory oversight to take over companies based on an arbitrary measure of risk, there is a wave of uncertainty that is drowning any kind of robust reinvestment in the American economy.
There is certainly some gain going on right now. Particularly for those looking to grab good deals, make acquisitions on the cheap, or bank a carry trade off some information asymetry in the market. But this isn’t anywhere close to what a thriving market would look like. In many ways Wall Street escaped the worst of the ideas in Washington to clamp down on economic growth. But Wall Street is still left wondering what is around the corner.
Rep. Barney Frank has said there is more to be done, especially in fixing Dodd-Frank which was forced through for political purposes. Fannie Mae and Freddie Mac have to be dealt with too. And by the time GSE reform is passed, we’ll need another bill to fix the unintended consequences of Dodd-Frank. The regulatory framework reform isn’t anywhere close to being done.
Rather than try to engineer a recovery by power of the government, the focus should be on returning a sense of certainly for how the market functions and what the role of government will be in encouraging markets or impeding them.