Who will work for the super-regulator?
Plans to create a super-regulator to spot systemic risk in the financial industry will soon be unveiled, and lots of people will be needed for the agency. Commentator Susan Lee sorts out the different candidates.
Susan Lee (Susan Lee)
More on Commentaries, America's Financial Crisis
TEXT OF COMMENTARY
KAI RYSSDAL: Sometime next week the Obama administration's going to share its plans for making sure what's been happening to the financial industry never ever happens again. Treasury Secretary Timothy Geithner will roll out the blueprints for a super regulator, government agency that's supposed to spot systemic risk and head it off.
Commentator Susan Lee got to wondering what kinds of people it might be good for that agency to hire.
Susan Lee: Well, let's approach this question in the negative.
For starters, not lobbyists or politicians. Neither group has the right prudential temperament or the right ethics. And lawyers are surely out of the running. Just look at the tons of lawyers at the SEC -- none of whom were able to spot the current crisis until it was upon them. And probably not guys from Wall Street. Granted, there will be lots of suits eager for a job -- but hiring them would create, almost instantly, regulatory capture.
That's the not uncommon event when regulators ignore the public interest to advance the interests of the folks they're regulating. It's unreasonable to expect a former Wall Streeter, who has spent years denouncing regulation, to change his or her spots.
Come to think of it, super-regulators can't be too young, or they'll have their caps set on a nice job in the financial industry when they leave public service. That's regulatory capture in the making. And they can't be too old, or the government will have to pay out the wazoo to match their giant salaries.
Academic economists aren't good candidates, either. They have big brains, sure, but lack the nitty-gritty experience of trading markets or even recognizing accounting dodges.
This leaves one more group of possibilities -- bureaucrats. But this group can be disqualified on grounds of proven incompetence. None of the bureaucrats, belonging to dozens of public agencies, were able to even identify one of the many causes of the current crisis.
What's the net-net? There are no obviously attractive candidates to staff a super-regulatory agency. In fact, this little exercise is a good demonstration of why the idea is a bad one. The job is impossible.
And it will generate the worst of all worlds: We'll have a new regulator that will give the illusion of protection. And that illusion will create the optimum conditions for the next crisis.
Ryssdal: Susan Lee is an economist living in New York City.
Comments
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From Minneapolis, MN, 06/18/2009
The ideal candidates are Finance, Accounting and Compliance professionals working for public companies, familiar with all the rules and regulations but insecure about the future of their jobs. I often consider moving to a government job where I can be guaranteed a pension, employment and inexpensive health care benefits.
From El Cerrito, CA, 06/15/2009
Susan Lee is dead wrong; it's not impossible. There's one guy who's perfect. The real question is why he hasn't been brought on board already.
He's William K. Black, who fits none of the categories above and possesses none of their drawbacks. He helped lead the charge to expose the S&L scandal in the 1980's and was instrumental in designing reforms to thwart a repeat. In 2005, after the FBI put out a press release declaring criminal fraud rampant in the mortgage industry - so massive it could bring down our economy - Black wrote "The Best Way to Rob a Bank is to Own One," detailing the S&L/regulator games and warning that the same games were recurring. The Bush administration gutted the FBI gutted the white collar crime unit exposing the problem. The government chose to let the abuses go unregulated.
This year he has appeared on Bill Moyers' Journal and The Young Turks to claim the bank bailout is specifically to cover up that failed investment banks are still being run by the criminal CEO's, accounting firms and appraisers that have looted them. He warns that, unchecked, the cover-up will bring down the Obama administration (whose Treasury secretary helped design the deregulation that made the abuses possible).
Google "Bill Moyers' Journal - William Black" and "The Young Turks - William Black" for Black's own words. At the least Congressional leaders should be having him testify and investigating whether his allegations are substantive. With this answer, Susan Lee should retract her contention that finding a banking czar is impossible and champion the appointment of William K. Black. If the banking industry - at least the CEO frauds - don't approve, that's a good sign. The criminals aren't supposed to like the cops who are coming after them.
06/15/2009
"In fact, this little exercise is a good demonstration of why the idea is a bad one. The job is impossible."
Your little exercise didn't account for how we have congress, the presidency, the Fed....
Just make a committee of young and old and college professors and wall street alum.
06/15/2009
"productive suggestion"?? - how could you have missed it? The most "productive" - or rather the least "counter-productive" - thing to do would be to NOT create another useless and eventually damaging bureaucracy. The ethical drive to reap profits and avoid losses are the only effective motivation for an economy. A bureaucrat has neither of these incentives, he will be bought by those who do, and the illusion that this agency is managing risk will ensure that risk goes unmanaged in the private sector.
From HI, 06/14/2009
I recommend the Case-Schiller Guys for the real property bubble. I read their blurbs before the giant popping sound. Sir Goldsmith was also alert but pulled out of market too soon. He didn't realize how stupid the rest of us were. Sir Newton did same premature pull out during the tulip bubble. Truly smart people just get it too soon. You also need some tanto people like me to gauge when the fan will be finally splattered.
From Minneapolis, MN, 06/13/2009
Susan Lee left out the most qualified (and probably most affordable) people to fill the ranks as "super regulators". They are ones who saw the disaster coming. They are the ones that did the in depth analysis. Asked the hard questions and didn't paint a rosy picture over it to please their bosses.
You have to know where to look for them though. They're usually in that sea of cubicles on the floors below the executive offices.
From Henderson, NV, 06/13/2009
Any lock will eventually be picked. Any regulation will eventually be avoided. The trick is to make the system self regulating.
This is incredible easy to do. You simply make the system open. Completely and totally open with the possibly exception of trade secretes. How do you enforce this. You do not. EXCEPT.
Corporations are creations of the state. So the state can set the rules. In the future there will be no limited liability corporations. The liability of the managers of a corporation, or of its top five? share holders will be unlimited unless all transactions and relevant facts are posted on the corporations web site. If the corporation causes losses to other investors or customers or clients then, unless all relevant information was available liability will not be limited. Relevant will be determined by a jury.
One may say that corporations will take fewer risks. In the current environment, my response to that is "And your point is??"
For an example of unlimited liability and how it works, look up lloyds of london.
From Modesto, CA, 06/12/2009
I agree with some of Susan's suggestions on who not to hire, such as no lobbyists or politicians. But just because she cannot, or will not, make a productive suggestion does not mean that we should abandon the idea of
developing an an appropriate system staffed with ethical and competent employees.
Terry
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