Future Financial Regulation: Not a Question of Sufficiency, But of Transparency and Integrity
Posted by Larry Doyle on May 18th, 2009 12:38 PM |
Will our future regulatory structure of the financial industry allow capitalism to thrive? Will the political wizards in Washington prioritize personal agendas and expediency over unquestioned transparency and integrity? I believe we are at a critical regulatory crossroads not seen since financial regulations implemented in the Securities Act of 1933.
Do the powers that be both in Washington and Wall Street understand the magnitude of responsibilities and obligations involved in this process? Initial returns are decidedly mixed. The debate by those intimately involved in the regulatory oversight is typically framed as a question of sufficiency. That is, does the industry have enough regulation or not?
The media often frame the debate in political terms between laissez-faire proponents and those favoring increased government intervention. Both camps are missing the bigger picture, because both camps are feeding from the same trough. Allow me to expound.
The critical regulatory question facing our markets is not of sufficiency but is one of transparency. Regrettably, both ends of the regulatory spectrum do not want to address this glaring shortcoming because it exposes the very nature of the incestuous relationship between Wall Street and Washington.
The mainstream media, to a large extent, is dependent on both Wall Street and Washington for their financial well being so they do not press or pursue the need for total regulatory transparency. Fortunately, Sense on Cents and other leading financial websites are not under this restriction.
Let’s dig deeper and review where regulatory developments stand currently. As the Financial Times reports, U.S. Poised For Finance Regulation Shake-Up:
Congress will next month start the biggest regulatory overhaul of the US financial system in decades, bringing into the open a frantic lobbying effort between banks, regulators and policymakers on what it contains and who pays for it.
The House financial services committee, chaired by Democrat Barney Frank, will hold hearings early in June into reforms outlined by Timothy Geithner, Treasury secretary, say people familiar with the timetable.
Regrettably, before the debate even begins the premise of sufficiency versus transparency is accepted without question. Well, Sense on Cents is questioning the lack of transparency and resulting integrity of the process, which by its very nature strongly influences the outcome. Allow me to be more specific. Much as the Parliament in the U.K. is being rocked by a current scandal over expenses submitted by legislators, I strongly exhort those who truly care about capitalism, free market principles, and our democracy to address the very nature of the relationship betwen the banks, regulators, and policymakers. (more…)
Uncle Sam’s Regulatory Double Standard
Posted by Larry Doyle on May 7th, 2009 5:24 PM |
As I have referenced previously, Jonathan Weil of Bloomberg truly distinguishes himself as the finest commentator within the world of financial journalism. Weil takes on the financial regulatory authorities for their selective enforcements. Today he reports, Lehman Bosses Walk, While Small Fry Walk Plank. Why after 2 years haven’t senior executives from mortgage origination firms (Countrywide, Ameriquest, New Century, Long Beach), quasi-government agencies (Freddie and Fannie), commercial and investment banks, and credit rating agencies been more thoroughly investigated, if not arrested and prosecuted?
Is there any doubt these firms and executives effectively purchased their own protection? After writing “How Wall Street Bought Washington,” it became exceedingly clear that money from Wall Street bought protection for the business units and the individuals. It is not likely that Uncle Sam will target executives at firms holding government money. Additionally, if Uncle Sam targets execs at failed firms, those execs would be likely to finger others.
As Uncle Sam is now both investor and regulator in the markets, how do market participants compel him to be an honest broker on both fronts? As Weil writes, quoting former SEC head Chris Cox:
“From the standpoint of the SEC, the most obvious problem with breaking down the arm’s-length relationship between government, as the regulator, and business, as the regulated, is that it threatens to undermine our enforcement and regulatory regime,” Cox said in a Dec. 4 speech.
“When the government becomes both referee and player, the game changes rather dramatically for every other participant. Rules that might be rigorously applied to private-sector competitors will not necessarily be applied in the same way to the sovereign who makes the rules.”
Haven’t we already seen this play? Why is it that public confidence in the markets and those overseeing them is so low? When the security patrol in the casino also has LOTS of chips on the table, how do we know the dealer isn’t also in on the action? If so, is it any wonder why the unsavory activities of other “boys in the club” who have run out of chips aren’t being prosecuted?
I commend Weil for raising this topic. I can only hope other media outlets will pressure the regulators to level the playing field.
LD