Why do I say this?
Look at the recent financial reform bill passed by the congress and signed into law by President Obama. It’s thousands of pages long. I doubt that most of the congressmen read it, or understand it very well.
And now it will go to the regulatory agencies to actually draft the rules of the (supposedly) changed playing field of finance.
Will the public, through the media, pay any attention to this process? Are you kidding?
But the banks and financial institutions are already hiring ex-regulators as lobbyists and spending major bucks on this area. So what do you think the rules are going to look like when they get done, if they get done in our lifetime.
That’s why I tout the virtues of simplicity. I think writing detailed financial rules and regulations is just playing into the hands of the operators out there. The more complicated the rules are, the more ways there are to game the system.
Considering the salaries paid to people in the financial sector vs. those the regulators receive where do you think the truly smart financial people look for jobs?
So what I propose is a version of Opt-In for financial instruments. The basic investments that are out there and that have been aroud for a while are known and pretty much understood. Home Mortgages, loans to business, car loans, stocks, bonds, etc. These all have markets and are not overly complicated.
So Banks can invest and deal in them and count the appropriate ones, at varying levels, against their capital requirements, and expect federal risk insurance.
Everything else, collaterized debt instruments, futures, bundled below prime mortgages, any ‘securitized’ financial instrument will have to apply for certification. And it should be an extremely strict process with absolutely no bankers on the board of the agency doing the inspection.
Perhaps it should be publicly debated also.
The banks can engage is this sort of trading, or speculating, or whatever you wish to call it. But not on the taxpayers dime. On their stockholders dime only until rigorous regulation certifies them.
I rather suspect risking their own money for a change will have a dampening effect on these ‘investment opportunities'.
This, along with a version of The Volcker Rule would go far to deal with this situation.
But, of course, I live in some weird dream world so don’t expect to see anything like this soon.
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