Tuesday, April 01, 2008

Insult to injury

I had lamented here earlier that we were not doing enough to regulate investment banks while opening up the 33 billion dollar a day money spigot for them with easy lending terms and little or no regulatory framework. Well, the Treasury Secretary Henry M. Paulson Jr. yesterday laid out a plan to overhaul the regulatory apparatus that oversees our nation’s financial system.

New York Times calls it 'dead on arrival'. I humbly agree.

Instead of greater regulation, the plan seems to buttress deregulation: One of the changes that Wall Street wants had wanted for years was for regulators to shift from being the rules police to looser “principles” based interpretations people - always a recipe for disaster - and it seems that this latest move by the Secretary seems to do just that. More details here.

The best reaction that I had read to the plan came from a statement issued by the Consumer Federation of America. The last sentence is telling and damning.

Rolling out this plan in the middle of the current crisis is like telling Hurricane Katrina victims stranded on their rooftops in New Orleans, ‘Don’t worry, if you can hold for a few years, we’ve got a really great plan to restructure the federal emergency response system’"

This plan had its genesis in Secretary Paulson’s conviction that overregulation and inefficient regulation were hurting the global competitiveness of U.S. markets. In fact, experience has repeatedly shown that regulatory failure, not overregulation, is the greatest threat to the health of our markets."

Placido Costanzi (1702 - 1759), ‘Justice and Temperance triumphant over Vice’, oil on canvas, 24” X 29” (Photo from a Christie’s auction book)

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