Financial market regulation: what the authorities aren't talking about...
The always bright and insightful Caroline Baum's comments of March 30th make a strong point regarding increased regulation of financial markets:
"The U.S Treasury and Federal Reserve are seeking enhanced authority to regulate and supervise a broad array of financial institutions. Having missed the last 216 crises -- including the savings and loan crisis, the Latin American debt crisis, and the current thank-God-it's-contained-to-subprime-crisis -- regulators operating under a new framework are almost certain to identify No. 217 before it blows up the entire financial system."
Exactly. More of the same won't help. But what about some sort of new scheme to regulate? Isn't there a better way of doing things?
Perhaps. I haven't seen it proposed yet. Maybe it's forthcoming. But even if it is, there's something no one seems to want to talk about: conflict of interest.
The way things work now, people who work for the SEC in compliance can get jobs with Wall Street firms anytime they want. How tough do you think they'll be on their potential future employers?
The bigger firms can and do hire these folks - and at much greater salaries than they can hope to make as regulators. It's kind of like members of Congress who get hired by private firms for their government contacts and rolodexes.
While conflict of interest is not an easy problem to solve - and there may be no perfect solution - have you even seen it discussed? I haven't. And until it's addressed, I'll be surprised if any new regulation or re-organization of the regulatory bodies will really matter much in the long run.
"The U.S Treasury and Federal Reserve are seeking enhanced authority to regulate and supervise a broad array of financial institutions. Having missed the last 216 crises -- including the savings and loan crisis, the Latin American debt crisis, and the current thank-God-it's-contained-to-subprime-crisis -- regulators operating under a new framework are almost certain to identify No. 217 before it blows up the entire financial system."
Exactly. More of the same won't help. But what about some sort of new scheme to regulate? Isn't there a better way of doing things?
Perhaps. I haven't seen it proposed yet. Maybe it's forthcoming. But even if it is, there's something no one seems to want to talk about: conflict of interest.
The way things work now, people who work for the SEC in compliance can get jobs with Wall Street firms anytime they want. How tough do you think they'll be on their potential future employers?
The bigger firms can and do hire these folks - and at much greater salaries than they can hope to make as regulators. It's kind of like members of Congress who get hired by private firms for their government contacts and rolodexes.
While conflict of interest is not an easy problem to solve - and there may be no perfect solution - have you even seen it discussed? I haven't. And until it's addressed, I'll be surprised if any new regulation or re-organization of the regulatory bodies will really matter much in the long run.
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