As economist Joe Stiglitz says, “But if the final bill that emerges from conference reflects the lowest common denominator, then we can only pray to be spared another financial crisis in the near future. Our economy and our Treasury can ill afford another such episode.”
In a profile piece by the WSJ titled, “The Three Men of Regulation”, it’s clear that the men who helped to define the crisis also helped to define the terms of our financial overhaul plans. They chose to pit activists and banking lobbyists against each other around the debate of regulation. We should not be so silly to let conflicted politicians define the course of our financial system on terms that start and end around broken lines.
As many of you know, we thought that Congress had the ability to think more structurally and fight for structural change in the face of extreme big bank abuses and a financial crisis. They have not done so, except a few like Senators Kaufman who have fought for the interests of the public. But even as we fight for the toughest parts of the regulatory bill, we still have a long haul fight to define the debate in terms of structural issues. Break up the banks has its political constituency now and it’s on the table. We can define the debate on appropriate terms.
“To some extent, some of the people who did the most to help precipitate the crisis are now in charge of writing the legislation to make sure theoretically it doesn’t happen again,” Mr. Hensarling said.
Messrs. Geithner, Dodd and Frank each vigorously defend their reputations, often with fervor and equally barbed words for their critics.
Politically, the three move very differently. They also answer to different political constituencies, which could challenge their ability to deliver a completed package by an unofficial July 4 deadline.
Mr. Geithner was a political novice before joining the Obama administration. Mr. Dodd is a classic Senate deal maker. Mr. Frank benefits from a broad Democratic majority but has been known to catch lawmakers off guard.
On May 21, coming out of the White House meeting after the Senate vote, Mr. Frank had the endgame in sight.
“It’s hard to even think that this is going to take us a month,” he said.
The obvious problems of graft and the revolving door between government and industry, in other words, were really symptoms of a more fundamental pathology: regulation itself became delegitimatized… This view was exacerbated by the way regulation works… Too many regulators, for instance, are political appointees, instead of civil servants. This erodes the kind of institutional identity that helps create esprit de corps, and often leads to politics trumping policy. Congress, meanwhile, often takes a famine-or-feast attitude toward funding, allocating less money when times are good and reinflating regulatory budgets after the inevitable disaster occurs. … This … also contributes to the sense that regulation is something it’s O.K. to skimp on.
[T]he history of regulation both here and abroad suggests that how we think about regulators, and how they think of themselves, has a profound impact on the work they do. … So reforming the system isn’t about writing a host of new rules; it’s about elevating the status of regulation and regulators. More money wouldn’t hurt: as … George Stigler and Gary Becker point out, paying regulators competitive salaries … would attract talent and reduce the temptations of corruption. It would also send a message about the value of what regulators do. That’s important… If we want our regulators to do better, we have to embrace a simple idea: regulation isn’t an obstacle to thriving free markets; it’s a vital part of them.