Hot Fuzz

Here come the Fuzz. Democratic Representative of Massachusetts and chairman of the powerful House Financial Services Committee, Barney Fife, er, Frank, yesterday hinted at potential legislative action curbing the apparently hazardous level of M&A activity in the US. Barney Fife, of course, was the bumbling deputy sheriff in Andy Griffith's fictional TV world. The sleepy town of Mayberry didn't have a lot of crime, so Deputy Fife never had a lot to do, and often got himself in trouble with grandstanding and antics.

Pardon us for confusing the two.

Barney (the Congressman) tells us M&A activity is apparently creating "enormous value" for the owners, but workers haven't benefited as much. "To the extent that we see gross imbalances," says Frank, "we will have to act." The Federal Fuzz is on a hot lead! Here are the details:

Congress Grapples With Private-equity Buy Outs
By Dow Jones Newswire, Morningstar

Let's set the record straight. M&A deals are very good for free market economies—they strip out excess capacity, deliver big shareholder returns, and help spawn new competition and innovation, among other things. An economy that doesn't freely consolidate is generally a stagnant one. And anyway, today's big merger and private equity activity is being driven by one of the longest, strongest equity arbitrage periods in history. (See our past commentary "If CEOs Don't, Investors Will Do It For Them.")

Most importantly in refutation of Mr. Frank's Fife-esque sleuthing, unemployment is at or near historic lows, US household wealth is at all-time highs, and personal income is gaining. Which workers exactly are getting crushed? Perhaps it was the dwindling ranks of the special interest labor unions that tipped off the Fuzz to this dead lead.

None of this will amount to much. It's more political posturing in the midst of a do-nothing Congress. With a nearly evenly divided House and Senate, a President with veto pen in hand, and strong pro-capitalist stalwarts like Fed Chairman Ben Bernanke and Treasury Secretary Paulson at the helm, nothing in the way of big new legislation is likely to pass.

Fife or Frank, we see a lot of snooping around for suspects in a town where there's no crime to be solved. M&A activity is a healthy thing for the economy and will continue for some time to come. We're sorry Mr. Frank is bored, but better to take an afternoon nap at the station than shackle a suspect guilty of no crime.