Painting the Town Red with Regulations
Now I suspect this spring (or possibly even sooner) we're going to see some color of a different kind in D.C. - the color red. That's going to be the color of the regulatory changes that will take up where President Obama left off in his speech to the nation the other evening. The lawmakers are ready to ratchet up the heat on certain banking practices (hedge funds top the list) and take a closer look at the regulations for the mortgage industry, among others.
I wrote earlier in an article about Obama's speech that in one sentence he made it clear that more regulatory changes are coming. "To ensure that a crisis of this magnitude never happens again, I ask Congress to move quickly on legislation that will finally reform our outdated regulatory system." I'm sure that some of the more unscrupulous (Bernard Madoff's name comes to mind) in the industry muttered unmentionable phrases under their breath at that one.
Now we see what happens when parents (the regulators) leave the house to their teenagers (investment companies) on Wall Street for a long weekend (about eight years). We'll be cleaning up this mess for years to come.
Fact is, when it comes down to the deregulated financial services industry. everyone now realizes it's not a good thing. Even Alan Greenspan admitted he was wrong to call for deregulation of the industry. Everyone is to blame for this, by the way, because Republicans can't claim this prize alone. Democrats had a hand in it too, including the Clinton Administration's push to ease banking regulations. It kept regular banks on a tight federal leash, but Wall Street banks began the deregulation era party. Now we see what happens when parents (the regulators) leave the house to their teenagers (investment companies) on Wall Street for a long weekend (about eight years). We'll be cleaning up this mess for years to come.
Now with the finger-pointing put aside, I think we all can assume certain things will happen. Some federal agency, probably the Federal Reserve, will be given the biggest watchdog collar to wear. The systemic problems that helped drive the country into recession didn't happen overnight, or even over one lost weekend. Someone has to keep watch and have the power to step in and make the tough choices or changes to keep the ship called the American economy on course.
The move toward enacting more consumer protections is underway already, as seen by the meeting on Wednesday between Obama and Secretary of the Treasury Tim Geithner. What did they talk about? One guess is how to better regulate the markets and financial services industry. The company or business that isn't attending to the expectations of their regulators now on the current requirements will want to get busy or retain a crack legal team.
The overhaul of the banking agencies must also be on their topics to discuss. Getting everyone to play by the same set of rules won't slow down financial institutions, but will better protect consumers and investors. The way some who balk at this notion should consider: If the consumers and investors aren't protected, then they won't be doing business with you anymore.
It will be a very interesting time the next few months on the Hill, as lawmakers ponder how much regulation to apply to the industry. Even the esteemed Group of 30 led by Paul Volcker, former chairman of the Federal Reserve says in its latest report "Financial Reform: A Framework for Financial Stability" that changes must be made, including the "structure of prudential regulation."
What changes do you foresee - or wish for?