| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
 Ah, the opinions are flying Wednesday, and I'm not even watching TV. Over at The New York Times, Tom Friedman offers the suggestion that the American International Group Inc. (NYSE:AIG) "brokers" should take one for the country to share the collective pain. OK. That'll work. Who cares if some of them are Brits and not really "brokers." And he's joined by Maureen Dowd, who's so spitting mad about bonuses that she quotes an obscure homily from her Gaelic father (it was St. Patrick's Day, a Dowd holiday) to the effect that boiled carrots can't stop a door. Andrew Ross Sorkin, who defended the sanctity of bonus contracts Tuesday -- it's a slippery slope you know -- in a series of multimedia skirmishes across town, should avoid her. Meanwhile, over at The Wall Street Journal, Thomas Frank goes after Jim Cramer and CNBC, which is like kicking a cadaver and crowing over it.
By comparison, the Financial Times is a haven of, if not of sanity, then at least discourse and even expertise: John Authers offers a coolly rational take on compensation, and Martin Wolf provides his usual serious disquisition, complete with footnotes, into crisis-related macroeconomics, trying to figure out if we'll all be broke in a few years (his conclusion: no, which is what goes for optimism from Wolf). And then there's, well, Henry Paulson -- yes, that Henry Paulson -- who shows up with an op-ed on regulatory reform; how fascinating, how revealing, that our former Treasury secretary, pilloried over AIG by all parties, opts for a pink foreign newspaper to offer up his views. And, no, he doesn't say anything about compensation. Still, Paulson's piece is a serious piece of work, which is more than you can say about a lot of others. It has the usual bombast. His plan is "optimal." OK. "The ideal regulatory structure would reflect the reasons we regulate and would recognize that the financial system has changed dramatically. ..." Really. It also indulges in a kind of certitude that, given the past few years, is as fantastic as it is ubiquitous. "A regulatory structure organized by objective is far more likely to withstand the test of time." Well, the last structure lasted over 70 years, which isn't bad. It may well be that a regulatory system with pretensions to eternity -- or a very long time -- is one fated to be felled by its own rigidity and hubris. Regulatory systems, which are bureaucratic structures, have to change, and change gets harder with time. Maybe, like Jefferson's notion that every democracy needs a revolution now and again, you have to blow regulation up and rethink it every few decades. The details? Paulson envisions three federal regulatory bodies that would cross functional lines: one charged with maintaining market stability, one to supervise institutions getting federal money or guarantees, one for protecting consumers and investors. This is a blueprint, not a plan, but like Paul Volcker's remarks a few weeks ago about bringing back Glass-Steagall, the devil is in the details. What would constitute firms with government assistance? Is he thinking banks with TARP money, or banks that get deposit insurance (meaning just about every one of them)? Paulson wants to eliminate "charter shopping" and "the race to the bottom," but he's vague about what he's really talking about. Is this code for government-sponsored enterprises like Fannie and Freddie that are now government-owned enterprises? His consumer protection body would clearly include many of the functions of the Securities and Exchange Commission, plus coverage of the mortgage business and possibly insurance. There's a lot of reorganizing to be done there, but that at least will plug some serious holes. Paulson is overly optimistic, however, that there won't be regulatory overlap and clashing missions. Paulson's plan for a market stability regulator is more controversial. He, like Barney Frank, thinks the Federal Reserve should get the job. But the details again are so vague that it's frustrating. How will the Fed effectively juggle its monetary role with its systemic franchise, particularly its responsibility to "save" and "wind down" failing institutions? Paulson seems to be suggesting that Congress should mandate that regulators insure that "any institution, no matter its size, can fail with minimal systemic impact." That technocratic language covers a vast amount of change. Institutions will have to significantly shrink or be broken up. A large swath of current financial instruments will have to be ratcheted back, particularly in the use of certain very useful derivatives that foster a systemic interconnectedness. What would be the power of the Fed to control leverage? Does Paulson envision a split between utility banks and risk-taking firms, as Volcker was proposing? How do you keep those utility banks viable? And how do you interact globally? And then there's the big question Paulson avoids, much as he tried to avoid it when he was Treasury secretary. That's governance. In particular, the systemic regulator poses a thorny governance problem. It's hard to imagine that it would be even quasi-independent, as Fed monetary policy claims to be. It's hard to imagine that the administration, through the Treasury, and Congress would essentially hand over to the Fed enormous power over the economy without strings. Besides, economic and regulatory issues are not just technical questions (neither is monetary policy, but we like to pretend). The problem here is that enormously centralized regulatory power -- and the systemic regulator would be just that and probably about as transparent as the current Fed, meaning not very -- would be tethered to the passions and fevers of a short-term democracy, the very kind of short-termism that fed the bubble and the very kind of raucous and intermittent passions that currently shape the debate. What's worse? When the public cares or when it doesn't? Paulson himself failed miserably in dealing with this kind of politics. But leaving out the politicians in the plan isn't realistic either. - Robert Teitelman Robert Teitelman is editor in chief of The Deal.
 Deal Video
    Community
 Elsewhere on The Deal.comDealwatchThe Deal MagazineCorporate Dealmaker
The Deal VideoCategories
Blog roll
Archives
| |||||||||||||||||||||||||
|
|
|
|
|
©Copyright 2009, The Deal, LLC. All rights reserved. Please send all technical questions, comments or concerns to the Webmaster.
