Tough day yesterday on Wall Street, and while I believe we may have bottomed out, we'll see how prescient that is as time goes on. AIG's liquidity problems are troubling, but I suspect they'll be saved by a consortium of financial industry giants and private equity. I think the Feds are right in staying on the sidelines; they've done plenty already, and the market needs to react to the changes.
I am a believer in the free market. I am also a realist who understands the imperfections of human beings. Free markets exist and thrive when there is confidence that everyone has an equal chance of winning and losing. This is where government regulation comes in. While I am the last person to want to be seen as an advocate of government regulation, it seems obvious to me that the financial markets are one place where a bit more oversight should be implemented. Quickly.
To your point, as President Reagan used to say, "Trust, but verify."
ReplyDeleteSure he was talking about the Russians and their adherence to INF, but that approach has served folks well regardless of the situation in which it is applied.
Trust that free markets will work, but verify that they do so fairly. Trust that financial institutions will make sound decisions about the instruments they will use, but verify that they do. Trust that during boom times firms are not getting swept up in irrational exuberance, but verify it.
Republicans and conservatives cannot be so averse to a little regulation that they eschew it altogether making way for overreaction following crises like the one in which we find ourselves now.
I wonder how many smart guys, especially in the corner offices really knew the details of how these mortgage backed securities worked. And if they did know, how much did they (or someone else) understand the impact that failure to really vet new borrowers would have.
I'm thinking a spot check program is in order. Better yet, INSURV for financial institutions. On a lottery type basis, depending on size, once a year a small percentage of the firms are going to be given the treatment to ensure they aren't getting a little squirrelly with their practices. Only a few unlucky firms get tapped, but the ongoing threat of being caught with one's pants down keeps the other ones in check.
Nicely done, Grasshopper. For those readers who don't know what INSURV is, it is an every 3 to 5 year inspection done on every ship in the Navy's fleet (mandated by Congress) by the Board of Inspection and Survey. It is the naval equivalent of a visit to the dentist, a stress test, and a colonoscopy all at the same time.
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