Not satisfied with playing a big role in destroying the housing market, Barney Frank has now set out to destroy what’s left of the tottering economy. This man is a certifiable incompetent. The Wall Street Journal ran an article on July 6th titled: “A Trillion Unintended Consequences”. The article describes the latest mischief Barney has made. Of course, Chris Dodd is up to his ears in this too. The article is a long one and I will give you my best summary.
At 4Am on Friday, June 25th, Barney Frank slipped a little amendment into the financial reform act. He tried to sell the idea in December, but it was rejected. So, at the 11th hour he snuck it into the bill that passed the House.
Basically, US corporations that hedge anything might have to put up as much as $1 trillion in collateral to continue hedging. This is cash that won’t be used to build plants, upgrade equipment, or hire people. The cost will passed on the consumer.
The railroads and airlines hedge fuel to reduce risk. The railroads post freight rates in advance. If fuel costs go up, they lose margin. Hence, they lock in the price of fuel to fit the freight rates they quote. If fuel costs go down, they pay more for fuel than they would with the hedge, but they are indifferent, since they are not in the fuel business. They have locked in their margin on the freight rate they quoted. Now, with Barney’s deal they will pay a few basis points to collateralize risk. What risk? They are not speculating, they are hedging. But, now they will need to put up cash to hedge to avoid a financial meltdown. It’s like a permanent deposit.
Experts have suggested the sum total of this across the business community might be a trillion dollars taken out of the economy and put on the sidelines.
I now believe Barney Frank has replaced Al Gore as the most dangerous man in America. Al has a few problems to sort out, and if it turns into a Tiger Woods situation, Al will be on the sidelines like the money Barney wants to park.
Barney gets a pass for using Freddie and Fannie to pass out mortgages to people who can’t afford houses. The media gives him the pass, except for Bill O’Reilly who skewered him last year. Now, the House gives Barney a pass for slipping something into a bill no one read that they had rejected. The media, except for the Wall Street Journal, gives him a pass for doing this. It can’t be changed without going back for a vote in the House and it might not pass this time, even if this were taken out.
How long are you folks in Massachusetts going to foist Barney on the rest of us?
