Let me take you back to a speech made on 24 February 2009 to a joint session of the US Congress, and a comment made by President Obama who said: "And to ensure that a crisis of this magnitude never happens again, I ask Congress to move quickly on legislation that will finally reform our outdated regulatory system." Of course, he said many other things about banks and bankers that night too, much of which I have to say was appropriate in the light of the debacle on Wall St. But it has been regulation that has been on my mind since the financial crisis, wondering how the regulators and their masters would, in fact, deal with them.
While there was a lot of disgust in the minds of the public, fuelling a desire by the politicians to do something that was a cross between doing their duty and making themselves popular, the frenzy surrounding the regulatory regime was being kept on the boil. Two particular worries for me were that some other crisis would loom, which might take the politicians eye off the regulatory reform ball, or the global economy would recover to the extent that the politicians were no longer so interested in those reforms, although recent events in Greece should have brought that idea to a grinding halt! That and the fact that the 80th bank this year in the USA has just been taken over by the Fed.
The questions we should have been asking, of course, were more about whether the regulations failed that badly, or were they just sloppily administered? Were we not perhaps more concerned about following rigidly to a set of rules and making sure the boxes were ticked, rather than giving some thought to the principles or ethics of the financial business world?
I have referred before in my Blog to a book I have (sadly no longer in print) that clearly set out the causes of the latest financial crisis - a book that was first published in 1875. If the advice therein had been followed this decade, we would have been much less likely to get into the sort of mess we did.
And in any case, it is hard to regulate, or legislate, or even teach against greed.
So, I am far from convinced that a change to the regulatory structure is the entire answer and although it's an impractical suggestion, nevertheless consider the best methodology - to be consistent with President Obama's required regulatory overhaul - would be to do just that; overhaul the entire system starting from scratch. We must have regulation, no argument there, and some of it is indeed old, but overlaying a new set of regulations to paper over the cracks of the old regulations is NOT a solution but a "fix".
The other matter for debate relates to the fact that banks have, in the eyes of some, become "too big to fail", and that we should therefore solve that particular problem by emasculating them and making them "too small to need to bail them out". That way we save lots of taxpayer money. But frankly that is a debate that misses the point entirely. The small banks actually fail more frequently than the big banks - but for the same reasons. They are too weak to survive. In other words our regulations and our banks - of any size - need to be created so they are " too strong to fail".
I opened with a quote from a speech given some 15 months ago, and what prompted my review of the subject was the approval by the US Senate on 20 May of a Financial Reform Bill. The first, I guess, of the major economies to get this far - and unsurprising that should be so, given the economic and political turmoil going on in Europe just now. A Bill that contains some new regulations, presumably designed to prevent a crisis of this magnitude ever happening again. A noble but unachievable goal I am sorry to say - but no, take nothing away from the fact that some action has at least been taken.
But then another article caught my eye - this on the subject of the Washington lobbyists which read, Financial Overhaul Bill Poses Big Test for Lobbyists. This article then went on to spell out just how the lobbyists, for cash, take up the cudgel on behalf of their donors to try and amend the provisions of legislation most damaging to the donors interests. The figure that made me really take notice was that the financial sector lobbyists had received US$1.7bn over the last 10 years from their benefactors.
I guess many of us are aware of the power of the Washington lobbyists, and have a notion of the amount of money that passes through their hands, but this looks like a large sum by any standards. And in fairness, of course, not everyone agrees with the process. One senator is being accused by his detractors of "sheer hypocrisy". Suggesting that he is bashing Wall Street with one hand, and filling up the money sack held in the other to fight on their behalf.
It certainly seems to me that no matter how strong the desire by Government to do the right thing, how high the anger levels by the person in the street who blames the banks for making his or her life a misery, we will never get this sorted out in a fair and well reasoned manner if we continue to allow vested and conflicted interests to rule at the end of the day. It's a race for reform alright - one where the rodents also take part.