For over 100 years increased government regulation of financial institutions has followed financial crises as night follows day.
This time will be no exception.
The fact is the market has lost confidence in the Federal Reserve, the SEC, the Bank of England and the Basel One or Basel Two regulatory regimes.
This crisis built for years under their watch.
I believe OSFI and the Bank of Canada have provided better oversight. In particular, the SEC has acted like a head waiter to the securities industry in the U.S.
In any event, there is a ray of light and that is Paul Volcker age 81, who was Chairman of the Federal Reserve from 1979 to 1987 and is arguably the greatest central banker alive today.
Last July the group of 30 nations launched a project on regulatory reform under the leadership of Paul Volcker. This report was tabled just ten days ago and contains four core recommendations and eighteen sub-recommendations, focused directly on problem areas which have emerged over the past two years including;
- structured products
- proprietary trading by banks
- regulation of hedge funds and private equity firms
- and several more
At the press conference tabling the report last week Mr. Volcker called the current financial system by a four letter word – he called it a “mess”. He said “we are going to have to rebuild this system from the ground up”.
We are fortunate, indeed, that the highly capable, blunt talking, Volcker has been appointed Chairman of President Obama’s Recovery Board.
The long and the short of it is;
The grand experiment of deregulation of financial markets and financial institutions which started with President Ronald Reagan’s appointment of Alan Greenspan in 1987, is over.