Construction depends on credit for all but the smallest projects. The plan shifts control of credit supply and terms to the President, just as the mortgage market was seized by Washington in the last year. Power seldom goes unused. Note that mortgage funds are being gradually redirected to favored borrowers: low income, bad credit, minority and buyers of “green” homes.  Large homebuilders and their suppliers are spending a lot more time lobbying in Washington to get funds directed to their markets.

The comprehensive plan fails to deal with the obvious causes of the recent financial problems. These were the failure of people to repay loans, the making of loans relying on implicit and free government loan insurance, hiding the riskiest transactions in off balance sheet or overseas entities to avoid regulatory oversight and the staffing of regulatory agencies with too many lawyers and too few cops so that discovery of bad behavior led to a long investigation instead of immediate arrests.

The Federal Reserve Board was created in 1913 to move monetary policy authority from Congress and the President to a nonpolitical entity.  This worked for 96 years.  It worked last fall when Congress and executive branch agencies were unable to understand or cope with the financial crisis.  The FRB moved quickly to calm the troubled financial market.  Note that none of the large firms that had headline financial collapses were overseen by the FRB.

The Obama plan collects consumer loan regulation in a new Consumer Financial Protection Agency that will oversee the terms of mortgages, credit cards and other consumer loans. In keeping with the current policy in Washington it will likely decide to force lenders to subsidize borrowers with poor credit records, raising credit costs for responsible borrowers.

The plan also forces more firms into regulations of their credit operations by requiring them to become bank holding companies.  This will make their parent companies and subsidiaries, including foreign branches subject to regulation, including regulation of executive compensation.  Like General Motors, these newly regulated firms may receive a call from a member of Congress who needs a special favor.

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