We have been talking about the need for regulatory reform to address the causes of the global financial failures. The House Financial Services Committee, chaired by Representative Barney Frank (D-MA), will open hearings on "broad regulatory restructuring and reform for the financial markets" starting Tuesday, October 21.
I don't know if these hearings will make the headline news or not, but the impact of regulatory reform will be significant. The debate will likely be an top issue in the coming year, with the direct interest of the new President.
The question is framed this way: what is the "extent to which an outdated and weak regulatory system contributed to the current market turmoil and whether adoption of a stronger and more robust financial regulatory system could contribute to a more rapid recovery in the financial markets and the economy."
Are these the right questions?
Except for the word "outdated" I think these are the correct questions. The regulatory framework that brought about this collapse was created under the guise of modernizing the futures market and of modernizing the financial markets.
The hearings will look at risk valuation, the implications of federal lending, the role of regulation in restoring market confidence, the need for capital requirements, and the adequacy of existing regulatory structure.
This will be the start of an important discussion. We need an open, transparent discussion. We cannot allow the exchange to be cut off with stock cliches and political grandstanding by either party.
The discussion need to involve listening. I am just not certain that the politicians are capable.
Looking back on the passage of Gramm-Bliley-Leach, I read that it was passed because everyone agreed to add on additional Community Reinvestment Act provisions.
Like the ridiculous addons to the Housing and Economic Recovery Act in July and to the just passed Emergency Economic Stabilization Act, these bills must pass on their own. They are either good or bad, on their own.
They are not made good by adding on another bill. We end up with two or more bad laws. Most of these addons are done in back room negotiations at the last minute.
This removes transparency and preempts open discussion.
Some questions I have. Is it good for banks to consolidate and merge, concentrating power into large companies? Is it good to allow mixture of financial services - commercial, investment, deposit, brokerage, insurance? I am certain that unregulated markets are dangerous, especially those that allow unfunded and under capitalized guarantees to be sold as a cover for bad bonds.
The hearings start October 21.
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