Regulate or Not?

Posted by Katherine | September 17, 2008 – 12:30 pm
Wall Street newspaper headlines
In the headlines worldwide [jovike / Flickr]

General Petraeus handed command of MNF-I to General Ray Odierno yesterday — a moment that might have triggered campaign talk (and invective) about Iraq. But all eyes were on Wall Street — and on whether its fundamentals are “strong” or in “crisis.” The financial malady may well eclipse other election issues from here on out. (See ya, lipstick?) Here’s a take on it from each side of the regulation debate.

Desert Beacon is from Nevada and agrees with Obama that unwise deregulation is to blame for what’s happening. S/he feels certain contols are necessary and should be enforced (thanks, Ann Raber):

Before treading into the turf wars between the Federal Reserve and the SEC, or between the Comptroller of the Currency and the FDIC, or even between the Office of Thrift Supervision and related agencies, the next administration would be well served by requiring that each agency do its job – rather than trusting the ‘players,’ be they managers of Blue Chips or investment bankers looking for new ways to make deals (and commissions), to operate within bounds. Nor should the next administration give much attention to the anti-regulation crowd that presumed that the market corrections (read: collapses) would take care of any and all contingencies. As the Bush Administration has learned to its discredit, some corrections have greater impact than others. Some, like the possible collapse of Fannie Mae and Freddie Mac, and Bear Sterns, have ramifications far beyond Wall Street. […] If there are companies that are “too large to fail” then there should be government regulation such that failure is not an optional burden for the American taxpayer.

Jason Krugman is a NY artist who uses motors and Christmas lights in his work — and who studied economics as an undergrad. It’s not clear whether he thinks either McCain or Obama is pointing in the right direction, but his pro-market view seems to line up with McCain’s record:

[T]he people who are in control, need to be paid differently. Notice I didn’t say more or less. If they are given the same overall compensation, but with a higher percentage of it in stock, it will make them care more.

Government cannot be counted on to solve this problem through regulating new markets. New markets must be left to self-adjust and correct. […] It takes time for shifts in the market to occur, and each one makes market participants smarter about the future. […] Instead of “Panel this, regulation that,” I wish Obama and McCain could really think about the root of the problem. Maybe they would realize that it lies within the flawed relationship between the individual and corporation. Cash compensation for executives should go the way of Lehman Brothers and maybe in the future, Wall Street’s smartest bankers will end up focusing on what’s good for The Firm, rather than how much cash they will pull in for the end-of-year bonus.

Jason doesn’t prescribe a preferred non-regulatory therapy for that “flawed relationship.”

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