February 2, 2010
The economic crisis villain du jour...
...appears to be proprietary trading, prompting a call for a ban of the practice at firms that received deposit insurance payouts, further prompting the Senate Banking Committee leader to effectively say, "Now we're over-reaching."
How I long for the day of the blanket accusation. Like the The President's Working Group on Financial Markets, which boldly concluded in March 2008 that the blame resided with mortgage
underwriters, securitizers, credit rating agencies, investment banks,
broker-dealers (foreign and domestic), CDOs, settlement systems, the OTC
derivative market, Federal and State regulators, the Federal Reserve, existing
laws and non-existent policies. See “Policy Statement on Financial Market Developments,” March 2008, available at www.treas.gov/press/releases/hp871.htm .
Or even the more descriptive conclusions of the White House regulatory reform plan of June 2009, which summarized the meltdown causes as "complacency among financial intermediaries and investors...exaggerated expectations about the resilience of the financial markets...weak credit underwriting standards...lack of transparency and standards in markets for securitized loans," excessive reliance on credit rating agencies and "compensation practices that rewarded short term profits..." See http://www.financialstability.gov/docs/regs/FinalReport_web.pdf.
In a word, we've been conditioned for months to believe that the perfect storm had too many causes. Thus, this current business of picking one villain and proposing a corresponding ban is quite novel, and not likely to succeed in producing reform legislation in the short term (and almost definitely not by Super Bowl kickoff time of 6:31 p.m. on Sunday).
February 2, 2010 | Permalink