Fisher Investments Editorial Staff
Others

A Hearing a Day

By, 05/12/2010

Story Highlights:

  • Congress called hearings on the "flash crash" and Gulf oil spill Tuesday—two more in a long string of inquiries.
  • Profits make businesses pragmatic—and very motivated to avoid oil spills and flash crashes. Their very livelihood depends on it.
  • Washington can only ever react to problems because their business is politics, their currency emotion—making for more grandstanding than problem solving.
  • It's mostly a waste of time, but we're all for silly show trials over actual legislation.

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There are congressional hearings on just about everything these days—we've stopped counting the Wall Street summons. There was a hearing on Toyota's brake problems. Tuesday was a double feature—the so-called "flash crash" and the oil spill in the Gulf of Mexico. What's next? A congressional hearing on congressional hearings?

Unbridled finger-pointing is pretty typical after a bear market and recession (neither of which was prevented by the last round of hearings), but is it at all useful? Do two and two make five?

The Gulf oil spill is a disaster. BP will take the brunt of the fallout. There's the actual oil they won't sell. And the cost of the clean up. Their public image will suffer. These are facts—and also reasons it's squarely in BP's interest to prevent future accidents. To say they didn't try to prevent a major spill before now (for the same reasons) is ludicrous. And to assume some magic regulation—or finger-wagging politician—will make them do a better job is plain misplaced.

Then there's last Thursday's Great Crash of 2:28-3:10pm. Big, stable stocks fell hard and fast. Accenture went from $40 to a cent—and back again. The S&P 500 dropped 8.6%, the 14th biggest intraday decline since 1930. But US stocks ended down only 3.2%. (If it seems silly to say "only 3.2%" compare that to being down 8.6%.) Many blame the crash on some kind of technical glitch, though no one knows for sure. There's no doubt it was a big, scary swing. Markets can be like that. But do we really need Congress to call in the experts for testimony? Wouldn't it be better if the experts were at work, making trading better serve investors? Does a 40-minute technical issue (if that's what it was) outweigh years of ultra-fast, increasingly efficient, and mostly error-free trade execution?

Those who know a business best are likewise best positioned to make it better. Congress is pretty good at writing confusing 300-word sentences and 14,000 page documents, but few have a degree in engineering. Fewer worked professionally in the oil business or finance. We'd wager none on an oil rig or trading floor. Which lawmakers had even heard of "eMinis" or "blowout protectors" before Tuesday's hearings? No matter, this is Congress. Making bold accusations and proposing broad solutions to complex, industry-specific problems is their job.

For every burdensome, inflexible congressional "fix," private businesses find a million solutions to issues we'll never hear about. By the time some problem piques politicians' ire, businesses are already scrambling to work it out. Business cares only for profits. That sounds cold hearted, but it also makes business leaders pragmatic—and very motivated to avoid oil spills and flash crashes. Their very livelihood depends on it. Washington can only ever react to problems because their business is politics, their currency emotion—the more grandstanding, the better. But most often, their words are wind.  

Congressional overfunctioning is as cyclical as business ups and downs, and is more about appearing to take "action" than actually solving problems. Seem like a waste of time? Maybe. Then again, we're all for silly show trials over actual legislation.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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