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Congress to move quickly on legislation that will finally reform our outdated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.
reform or no reform is that the question or the answer? for sure the way it has been working since the last decade it has not brought the world stability...but maybe that's what is not wanted...instability provides huge opportunities for those who have the cash and dare to go where no one else dares....i.e. warren buffett
Posted by: hans olijve | 25 May 2010 at 12:48