Research Zeitgeist: Ready, Aim, Hold the Ammunition
Now that US financial institutions have dodged a major bullet and most look likely to live to fight another day, the bullets are being removed from the regulatory firing squad one by one. When the financial system was on the brink of total meltdown, there was widespread agreement that only a thorough overhaul of the regulatory system could prevent a recurrence. But now that things have settled down a bit, it looks like changes will be marginal and will leave the alphabet soup of agencies largely intact.
It’s a depressing but not surprising prospect to see the power of the industry lobbies and the turf fighting of the agencies win out over the public good. There’s a real possibility that the “reform” emerging from the worst financial crisis since the depression will be of the worst kind: adding cosmetic changes that make it look like Congress is doing something meaningful but that only increase the regulatory burden without any significant benefit to the system.
To be sure, as Tyler Cowen points out, the Department of Homeland Security has not been a smashing success and argues that more modest reform may not be such a bad thing. Does anybody seriously believe that if you started with a clean slate, you would end up with anything like the current hodge-podge of overlapping and competing financial regulatory bodies? As Felix Salmon writes, the current regulators have clearly failed at their jobs and there’s no reason for entities like the OCC and the OTS to continue to exist.
It is not more regulation that’s needed, but better regulation.
The testimony of Bank of America chief Ken Lewis was the latest example of the increasingly symbiotic relationship between government and Wall Street, as Lewis refused to admit he had been strongarmed by government heavies Ben Bernanke and Hank Paulson into taking over Merrill Lynch, despite strong evidence to the contrary. After all, he still needs their “protection.”
Visitors to Research Recap are clearly not convinced that the problems are solved, as they show strong interest in posts cataloging continuing problems in the financial markets.
McKinsey’s estimate that commercial loans will bear the brunt of US bank losses of some $125 billion a quarter through 2010 was the most popular recent post, along with Moody’s similar projection that US Banks will lose or write down another $470 billion by 2010.
Visitors are also watching closely the continuing downgrades of prime jumbo and Alt-A mortgage backed securities by Standard & Poor’s.
Two reports from CreditSights also drew strong interest: Warrants remain an issue for US banks exiting TARP, and on a more optimistic note, Rise in credit card delinquencies may be peaking.
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