Note to Republicans: Stop Defending the Banks. Defend Free Markets
Republicans should not obstruct the Dodd/Frank bill and align themselves with the defenders of the megabanks. They should ask for one little thing in return for their support; better markets. President Obama in his speech lined up behind Dodd, Frank and the misguided belief that regulators can actually grasp what the megabanks are doing. There is very little evidence that this is true.
The glaring and disheartening reality is that last time around the regulators endorsed and often required every one of the practices that led to the crisis. Complex mortgage backed securities, which were at the heart of the crisis, with their bogus AAA ratings (conveyed by government-regulated ratings agencies), were mass produced in such huge volume largely because the regulators had blessed them as the safest of all possible bank investments, short of U.S. Treasuries.
That’s why we have proposed the one truly radical reform that would have prevented both the mortgage crisis and the crash and would do far more to prevent future catastrophes: Require “Full Disclosure of Assets” from every U.S. financial institution managing other people’s money.
Markets need information. Markets failed two years ago because for many years they were denied the information they needed to make good decisions, to separate good mortgages from bad, good banks from bad, and shift capital accordingly. For too long American banks have operated in the shadows, their inner workings hidden not from regulators (who have an invincible legal right to examine every line in the banks’ books) but from citizens and investors.
The Democrats want better regulators. That’s a Democrat thing. Republicans should be asking for their thing: better markets.
With the raw data public—every stock, every bond, every long, every short, every hedge, every swap—the short sellers and curmudgeons of the financial world would keep the banks on the straight and narrow and create an early warning system that would run rings around the regulators.
Let’s build redundancy into the system. Let the government regulators save us if they can, but with full disclosure of assets we can all check their work. That’s the best protection we can have.
Tags: Andrew Redleaf, barney frank, dodd, Financial regulatory reform, revelation not regulation, Richard Vigilante
