Sense on Cents

Will the change in the calendar bring about change in the prospects for real financial regulatory reform? Will Wall Street and Washington recycle the streamers and party hats used for New Year’s Eve celebrations and declare that the market is up so all is well? If the general media allows the charlatans in Washington and their consorts on Wall Street to frame the regulatory reform debate, America should expect little to no change on this front. In the process, a tremendous opportunity will have been squandered and real risks for our collective future will remain.

The haggling over regulatory turf continues again with Ben Bernanke’s declaration yesterday that our housing crisis resulted not from excessively easy monetary policy but rather lax regulatory oversight of mortgage lending. Whose domain is that to regulate? Oh right, that is the charge of the Federal Reserve. The joke on the American public continues, given that Bernanke is not called on the carpet for that sort of grandstanding.

Bernanke’s comments yesterday are merely another example of the standard political pandering and posturing that has numbed our nation. The fact is, the terms of the debate need to be changed. Wall Street as an industry has NEVER changed and will NEVER change under the umbrella of a self-regulator.

Washington should spare America all the platitudes and politicking on this topic. Until the regulatory oversight of the financial industry changes, we are largely wasting our time thinking that Wall Street can or will be reformed.

Who said as much? The disgraced former New York AG and Governor Eliot Spitzer. Let’s revist what Spitzer said in The New Republic, which I addressed on September 14th. Spitzer asserted:

We know markets are still the best way to allocate resources and to set prices and wages. But the first and essential corollary to any theory of markets should hold that they are fragile and must be protected. No matter how frequently large swaths of the world loudly shout, “We love the market!,” virtually nobody does. In the absence of rigorous enforcement of rules, market players seek monopoly power and unfair advantages; they take risks at the undisclosed expense of others, or violate fiduciary duty. None of this means these actors are “evil” or “immoral.” But their actions demonstrate that self-interest, unbridled by enforcement of rules, will destroy the very market so many people so ostentatiously claim to adore.

So, we can now dispose of that old canard that self-regulation preserves the integrity of markets. There is essentially no evidence that any self-regulatory entity–from the Securities Industry Association to the New York Stock Exchange–ever revealed or resolved a single structural flaw in the market place. Rather, they papered over and rationalized away all the bad behavior they witnessed. (LD’s highlight)

Wall Street is a fabulous, but seriously flawed, industry. For the long-term well being of the industry and our nation, self-regulation of this industry should end. FINRA should be extinguished and the oversight should be put in the hands of a government agency that has real teeth and is not beholden to anybody.

Hell may freeze over first, but I strongly believe in my premise.

What do you think?

LD

This entry was posted on Monday, January 4th, 2010 at 12:04 PM and is filed under FINRA, General, regulation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.