Absurd to Expect Regulators to be Smarter than Banks
John Tammy, editor of Real Clear Markets is certainly right that it is absurd to expect the regulators to be smarter than the banks. But that’s only an argument against discretionary regulation, which is what got us in trouble. And banks like lawyers, perform a partly public function and for that reason will always be regulated at some level, even in a scheme that looks like deregulation. As long as banks have access to the Fed’s resources, they will be partly tools and partly beneficiaries of government. 
Short of dumping the entire Federal Reserve system, which is not on the cards politically, the answer is not another pretend deregulation, but a few simple statutory rules to define a context in which banks can operate without threatening the entire financial system. We’ve proposed two: Complete, detailed disclosure of their balance sheets down to the CUSIP level or equivalent, which would encourage market discipline, and a doubling of capital reserve requirements which would wipe out the interest rate subsidy of too big fail.
Pointing out Republican hypocrisy on the deficit, as Barry Ritholtz does, is shooting fish in a barrel, but that doesn’t mean the fish should be spared.
Tags: Andrew Redleaf, bankers, Mortgage Crisis, Richard Vigilante, Whitebox
