Thursday, October 23, 2008

Who Regulates the Regulators?

With hearings going on right now by the House Government Oversight and Reform Committee to review the recent financial crisis, something is becoming very clear to me.

The regulators haven’t been regulating. And it seems like none of them – Alan Greenspan and his successors, the banks and financial institutions, etc. – didn’t see the financial collapse coming. Some financial people and regulators made comments before the implosion that things were going to go bad, but they did nothing to alert the right people or to take corrective action. A perfect example of the attitude could be found at Standard & Poors, as evidenced by an email from 2006 (yes, 2006) that stated “Let’s hope we are all wealthy and retired by the time this house of cards falters.” So, even in 2006, some knew that the country’s financial framework was shaky at best.

It seems that the regulators have been derelict in their own duties. Was it their own greed? Was it that they were just terrified what would happen if they blew the whistle? Was it incompetence? Laziness? Indifference? Fear?

The more the hearings continue, the more I realize that there isn’t anyone minding the store. Sure, we have regulators, but it appears that their role was nothing more than to be window dressing.

The first thing that comes to mind is that we may need some “grand, all-knowing, all seeing overseer” who is in charge of all these financial processes and will take care to make sure they all are doing their jobs. But wait, what happens if the “grand, all-knowing, all seeing overseer” doesn’t do their job? And why must we add more government and more bureaucracy just because some people aren’t doing the jobs they are supposed to be doing?

We need to first look at those government agencies that are in charge right now and assess the level of competence of the people at the top, and clean house and bring in new blood, starting with the Fed and the Treasury. While the SEC is not the apparent cause of the stock market’s recent collapse – the collapse being an after-effect of the financial crisis – it does seem that some trading methods and practices need to be reviewed and possibly eliminated or re-tooled. Tight controls need to be put in place for hedge funds, which operate as if this is the Wild West. And companies like Standard & Poors or Moody’s that evaluate and rate stocks need to be audited themselves and if evidence that they ignored signs of trouble in the housing market and/or with financial companies and they did not reflect it in their ratings, they should be charged with fraud and face stiff fines. And, since it appears that these places profited from the housing market as long as they continued to rate companies favorably I think there was definitely too many conflicts of interest that go unchecked in the financial markets.

I admit, I don’t know the answer to the problem. I suppose that a “grand, all-knowing, all seeing overseer” would help, but I would prefer that these agencies just do the job they are paid to do. Is that too much to ask? But where does it end? The buck must stop someplace. Whatever the government decides to do, the American people should ask for complete transparency in everything these people are doing, and even the smallest tidbit of information on what these people do should be made public. I am sure there are millions and millions of Americans who would be more than happy to help keep an eye on the country’s financial health and would be quick to blow the whistle if anything improper is discovered. Count me in!

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1 comment:

Music Wench said...

I just know my husband - who used to trade stocks back in the nineties - said something like this was going to happen with the Fed interfering in the natural course of the markets and the economy. He though Greenspan wasn't doing us any favors and he was right.

I think anyone at the top who knew this was going to happen should be thrown in jail and should have to pay some restitution.

Just like all those people in charge of AIG should have to go to jail for gross negligence and just plain stupidity. And they should personally repay the money they WASTED.