Bailout

How to get financial reform

By Felix Salmon

TED’s Reformist Manifesto is, for all his bluster, a pretty standard wishlist in terms of what kind of regulatory structure you’d set up if you were starting from scratch. It can really be boiled down to one principle: minimize the amount of unregulated financial activity, while also minimizing the amount of regulatory bureaucracy.

The problem, of course, is how we get there from here. Last night I moderated a panel on the future of Wall Street, and there was definitely a consensus that we’ve wasted our crisis and that both Wall Street and Washington have started drifting into complacency. I don’t believe that Barney Frank and Chris Dodd have given up on implementing regulatory reform, but I do believe that the longer it takes, the weaker it’ll be. And I also see almost nothing in the way of constructive help on such matters from the Republicans, when this is an issue which should really unite the parties, rather than divide them.

The bigger problem is that regulatory reform is fundamentally boring: anybody who was sentenced to covering Basel II would occasionally drift into a revery about quitting their job and doing something much more interesting instead, like covering clearing and settlement.

There are lots of areas where small details make a very big difference, and groups like FASB and the ABA can spend years debating single paragraphs in long regulatory documents. The big-picture stuff is important, but the granular stuff is important too, and that’s where the bank lobby can slow things down to the point at which nothing ever happens. Meanwhile, the population as a whole will have moved on from being angry at banksters: the window of opportunity where politicians can actually get votes by announcing that they’ve merged the Office of Thrift Supervision with the Office of the Comptroller of the Currency has already closed.

Maybe we really should go around paying bankers $20 million a year: it’s the only way to keep the outrage at the minimum necessary level to get any substantive changes done. Or maybe we should set up a system whereby if a regulatory-reform bill hasn’t been signed into law by say March, Ben Bernanke’s renomination will automatically be pulled and he’ll be replaced by Matt Taibbi. That might help concentrate minds a little.

Full post as published by Macroprudential on December 04, 2009 (boomark / email).