A year ago, the Federal Reserve suppressed AIG’s attempt to release key information about the insurance giant’s $182 billion bailout, as Daniel wrote earlier.

The news, unfortunately, is no surprise. But Americans should try to sustain our shock at how thoroughly Washington has eviscerated principles that underpin free markets. Otherwise, Washington won’t do what’s necessary to say: never again.

Specifically, AIG wanted to tell the public last winter that it had used bailout money to pay off trading counterparties, such as Goldman Sachs, on its unregulated derivatives transactions. But, as Bloomberg News reports, the New York Federal Reserve Bank, under then-chief Tim Geithner, “crossed out the reference in a draft,” and “AIG excluded the language.”

The public “deserve[s] full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information,” GOP Congressman Darrell Issa, who requested the documents, concludes.

The episode shows that the biggest price the nation will pay for its 2008 bailouts is not financial. The biggest price stems from how quickly the political class was willing to destroy decades-old standards.

Those standards — including free, fair disclosure — attract global investors to our markets.

When the government abuses its power and dispenses taxpayer money in the dark, all we’ve got is crony capitalism.

The damage isn’t theoretical. If Washington mucks the financial system up with political risk, the nation can’t attract global capital on the merits.

Unless free-market principles govern the financial industry, finance — the gateway between investment capital and the rest of the economy — will remain warped by government capriciousness.

The economy, with finance so distorted, can’t replace seven million destroyed jobs.

The Congressional solution isn’t to create a “systemic risk regulator.” That’s the fix that outgoing senator Chris Dodd and the Obama administration are pushing without much Republican resistance. Such a regulator would institutionalize the regulatory arbitrariness that destroys markets.

Instead, markets need — among other things — existing regulators to enforce consistent limits on speculative borrowing and consistent requirements for disclosure and trading. Then, when the next AIG fails, it can go under without causing unacceptable damage to the economy.

Congress needs to understand that absent consistent rules, the financial system is not fixed. It’s silently incubating the next disaster, with its executives confident that their firms have access to bailouts on demand.

Meanwhile, the economy stagnates.

Congressional Republicans can play a big role here. Issa’s got everyone outraged. Now he should present the good news: It’s fixable.

Original Source: http://corner.nationalreview.com/post/?q=NGFjOWZlNWJlOTk0NTZiNzU3OWFhZTc2ZjNkYjllYTA