Wall Street Vs. Regulation

April 28th, 2010at 07:22am Posted by Eli

The people who blew up the market claim that regulation would be bad for it:

Predictably, the industry is opposed to the mandates for greater transparency. As Reuters reported, “Exchange trading has nothing to do with reducing credit risk,” said Conrad Voldstad, chief executive officer of the International Swaps and Derivatives Association. “In fact, mandating that all swaps be exchange-traded will increase costs and risks for the manufacturers, technology firms, retailers, energy producers, utilities, service companies and others who use over-the-counter derivatives.”

My general rule of thumb is that we should generally ignore what Wall Street has to say about financial regulation. Investment banks lack the common sense to know what’s good for them. The financial sector opposed all the regulations that were good for it in the 1930s—i.e. the advent of the Securities and Exchange Commission and the creation of the Federal Deposit Insurance Corp. And the regulatory changes it requested and received in the past decade—eroding Glass-Steagall, getting the SEC to permit investment banks to increase their use of leverage—set the stage for the debacle of 2008.

For the past several decades, Wall Street has continually told Washington that if the Street can’t do things the way it always has, and if the government changes the rules to mandate greater transparency and customer protection, that the geniuses in Lower Manhattan won’t be able to make money, and it would stunt the industry. They’ve been wrong every time.

They’re like little kids who want to gorge themselves on candy and soda pop, never remembering that that always gives them a massive tummyache which makes them and everyone around them miserable.

Of course, in this case they get a very expensive magic pill to make the tummyache go away, but everyone else stays miserable…

Entry Filed under: Economy


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