The always excellent Epicurean Dealmaker has started a new blog, The New Decembrists, all about financial reform. Fantastic! I have a sneaking suspicion the next 4 months will be an interesting ride on this topic, and we need more voices.
Here is his manifesto. I’m going to comment on a few of his 10 points. His points in bold, my comments underneath:
1) Ban political campaign contributions by the financial industry.
I think it might be ‘bill of attainder’ territory to just go after the financial industry, and banning all contributions is a free speech issue. I think an easier approach would be a simple “No contributions from firms regulated by the committees politicians serve on” rule. No financial industry contributions to those who sit on the Financial Services Committee, no energy contributions to those who sit on the Energy and Commerce Committee. I’m not sure if it would survive a legal challenge, but that seems fair in a way that might convince a lot of people – referees can only be taken out to dinner by teams that they don’t ref for – and it may also provide real incentives for those with some integrity to sit on the most hot-button issue committees while those who just want to cash out their representative position will all rush to the Bird Watching Committee or whatever.
Though that might just be me with diminished expectations – Lawrence Lessig is able to start convincing Richard Epstein on campaign finance, so maybe there’s room for a giant liberaltarian movement here.
2) Narrow and focus the role of the Federal Reserve…3) Render Fed actions and deliberations transparent.
To me this is an either/or. If the Fed wants to be the systematic risk regulator and use its 13 (3) privileges in an expansive manner going forward, there needs to be a change in the way they are monitored. I understand 13 (3) goes back 70 years, but given that the Fed will use these privileges more aggressively in the future then they need to be monitored in an equally aggressive manner. Removing these regulation powers to outside the Fed (as the Dodd Bill currently proposes), means that there isn’t quite the same need for transparency (though the way appointments are made could stand to be reformed either way).
4) Consolidate all banking supervision under one unified national regulator.
Yes. Also this is good for business too – the largest, most connected firms have the ability to regulator shop, while the smaller firms have to deal with overlapping, and often contradictory, regulation signals. This point was one of the community banker’s objections to the CFPA – having multiple regulators is a nightmare for small firms, even more so if you aren’t fundraising for their bosses and can compete them against each other.
9) Force virtually all over the counter derivatives onto exchanges and clearinghouses.
I’ll repeat his argument:
This will increase visibility, improve netting and credit relationships, bolster systemic stability, and lower costs in most instances. (More information = lower prices.) Exceptions for highly customized OTC derivatives and/or pure end-user hedging instruments should be made on a product-by-product and case-by-case basis. If nothing else, such a regime would have enabled counterparties, regulators, and other market participants to have seen stupid, reckless, unlimited naked-put writers like AIG Financial Products coming from a mile away. How, exactly, will greater transparency and easier margin and credit control increase costs in these markets? They won’t. Disagree? Prove it.
I hope ED keeps it up in the weeks ahead, and especially that he work towards a theory of resolution, both in scope and in detection/deterrence.