Thursday, April 15, 2010

Financial Sector Regulation Takes Center Stage

As financial sector reform takes center stage in Washington, D.C., stories and investigative reports pour out from all mediums and news centers. Many of the stories expose Wall Street and commercial bank fraud, while others implicate lender fraud and borrower irresponsibility in the days, months and years leading up to the market collapse of 2008. Congress is beginning its expected posturing and inane line drawing despite significant national support for thoughtful regulation.

Below are some of the more interesting stories and reports as the debates heat up.

Wall Street banks continue to mask their risk levels by using the “repurchase” or “repo” market to intentionally drop risk level reporting directly prior to quarterly financial disclosures.

The Securities and Exchange Commission, after taking a beating for its failures precipitating the financial crisis and the Madoff Ponzi Scheme, is trying to resuscitate its image.

Consensus among independent financial experts builds for breaking up “too big to fail” banks.

Michael Lewis, author of “The Big Short,” expressing a sarcastic and skeptical view toward those that warned of dangerous market conditions and excessive risk prior to the market crash.

Yves Smith challenging Michael Lewis’s “The Big Short” thesis describing the underlying reasons for the market crash.

How one hedge fund managed to maintain the housing bubble and continue to housing market madness.

Will tougher leverage requirements for commercial and investment banks lead to them seeking to transfer off balance sheet?

Secretary Timothy Geithner has written an op-ed in the Washington Post supporting the current financial sector regulation reform.


  1. This wave of investigative journalism is a good way to fix the cracks in the economic system that allowed for these problems to start in the first place. One reason that the problems involving financial regulation were allowed to occur was the lack of emphasis the public put on issues revolving around the economy. While people worried about decisive social issues that may or may not be importanat in the grand scheme of things, legislation like Glass-Stengal was allowed to pass and drastically deregulate our finaical system until this meltdown was inevitable.

  2. Paul Krugman in today's NY Times had a terrific op-ed where he analogized allowing the big banks to fail would be similar to letting a fire burn unabated. The domino effect of a big bank's failure into the surrounding national and global economy - causing another depression like what occurred in the 1930s when the US government did nothing to curtail the failure of the banks then.

    Mr. Krugman argues that "reform legislation gives regulators “resolution authority,” which basically means giving them the ability to deal with the likes of Lehman in much the same way that the F.D.I.C. deals with conventional banks."

    He goes on to say that, "Wall Street isn’t lobbying to prevent future bank bailouts. If anything, it’s trying to ensure that there will be more bailouts. By depriving regulators of the tools they need to seize failing financial firms, financial lobbyists increase the chances that when the next crisis strikes, taxpayers will end up paying a ransom to stockholders and executives as the price of avoiding collapse."

    Consequently we must remain vigilant of *whose* interests are being protected by our elected leaders.

  3. As a current Business Associations student, I find all the talk of financial reform to be fascinating especially since I am just beginning to understand how the legal aspect of the market works. A few months ago, my Professor asked the class "Where has all the money gone?" she stated that "Matter is neither created nor destroyed" with that being the case, where has all the money in the market gone? But, with all the financial reform, there are obviously going to be major changes in the financial sector, I just cannot wait to see it all unfold.