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Monday, September 14, 2009

Financial Regulation Overhaul: New Tools for the Same Fools?

Every time I hear calls for a new regulatory structure to fight some "new" or "emerging" problem, I think first as to why the existing laws or regulatory structure were insufficient.   Then, I consider who has been doing the enforcing.

So-called improved or stricter laws will be useless, if the enforcers (the regulators or the "cops on the beat") are not up to the task.  

Perhaps the people doing the loudest screaming for new regulations are the same people whose incompetence led to the crisis they now profess to want to save us from.   By shouting for new laws, they can distract us from the bad job they did before.   In essence, their argument is:  The [whatever bad thing happened] because we didn't have "the tools" to do the job, and it's definitely not because we screwed up. 

A tip on human nature. People do not like to have their incompetence exposed. (Exhibit A:  Michael "Heck of a job" Brown, formerly of FEMA.  Exhibit B: Securities and Exchange Commission.)

After all, in just the past few years we have had the subprime mess, the overleveraging that blew up a few thought-to-be-too-big-to-fail investment banks and commercial banks, Marc Dreier or Bernard Madoff.

That's funny.   I thought Sarbanes-Oxley was supposed to prevent all that.

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