Financial regulatory reform is DOA
Posted: Wed Jun 10, 2009 7:08 am
Shocking...either Obama's really weak or being controlled:
I guess the banks really do own Washington...and the Dems are no better than the Pubs.
http://www.thedeal.com/dealscape/2009/06/is_this_the_end_of_real_regula.phpThe White House is giving up on any real institutional restructuring in its regulatory reform proposals. Instead, sources within the administration say the effort will focus on convincing Congress to tighten up the rules, and eliminate the gaps.
Well, this is discouraging, though not surprising. Institutional overlap, bureaucratic divergences, a rat's maze of offices and rules has long been symptomatic of the reality that we had a festering regulatory problem. Some basic restructuring of regulatory bureaucracies has long been seen as a precursor to more fundamental and more difficult issues. Now we seem to be skipping that restructuring because it's too difficult politically. From a pure budgetary standpoint, it's also crazy to have four bank regulators when the industry has converged enough to require one. And what is the logic of splitting derivatives regulation between the Securities and Exchange Commission and the Commodities Futures Trading Commission? Does anyone really believe outside Congress that complex issues underlying derivatives really have anything to do with pork bellies and corn futures?
Convergence and consolidation are really at the heart of this. In the Washington dream world, thrifts are very different from bank holding companies, which are very different from investment banks or insurers. In the real world, we have seen these once varied institutional life forms become more alike than different; probably the greatest differences between them stem from varying levels of regulatory disclosure and rules. But underneath all of them -- for good or bad -- there's a single engine: the markets, which are intimately interrelated and global. Banks offload loans into credit markets; insurers like AIG deal in credit default swaps; thrifts and banks sell mortgages and ship them upstream to investment banks; Goldman, Sachs & Co. (NYSE:GS) and Morgan Stanley (NYSE:MS) can morph from investment banks to commercial bank holding companies overnight and go on their way.
Does it have to be this way? Well, no -- but there's a price to be paid in the availability of liquidity and credit if we turn back the clock and try to carve up institutions functionally to emphasize their differences or (much dumber) match them to their traditional regulators and essentially freeze their operations. In short, we would be safer, if perhaps poorer. One of the interesting pieces of evidence to suggest we are not heading in that direction is that no one in the White House or Congress has murmured the phrase Glass-Steagall since Paul Volcker discussed it at a conference early in the year. Volcker has gone silent and so has the idea that financial institutions should be driven by diverse functions, trade-offs and rules; that a sort of heterogeneity and specialization should prevail. So from a pragmatic standpoint, the administration seems to have decided that the underlying market monoculture of finance (and, by extension, the continuation of too-big-to-fail institutions) should remain essentially intact, hedged perhaps with greater transparency and rules.
I guess the banks really do own Washington...and the Dems are no better than the Pubs.