The Dangerous Myth that Financial Regulation is Unrelated to Financial Crime
William K. Black
The inspiration for this article was an op ed in the Wall Street Journal by Wendy Long, the Republican/Conservative Party of New York’s candidate for the U.S. Senate. Long’s thesis is:
“Since the financial crisis began in 2008, four proposals for financial-industry reform have emerged. Only one will work, and it’s not the one imposed by the 2010 Dodd-Frank law. Let’s review the options.
1. Break up the banks.
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[I]f U.S. banks are split up, foreign competitors will take advantage.
2. Separate investment and commercial banking.
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[T]he financial crisis showed that separating commercial and investment banking increases risk. The real culprits, Bear Stearns and Lehman Brothers, were stand-alone investment banks, as was Merrill Lynch. The crisis showed that runs on investment banks are more likely than bank runs. Diversification of liabilities and FDIC-insured deposit funding are not the problem but rather a source of strength.
3. Aggressively regulate the financial sector.
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It is harder to understand why the two senators from New York would want to be a party to the Empire State’s downfall as the world’s financial capital, which is the direction Dodd-Frank is taking us. They apparently feel politically safe enough to indulge their big-government fantasies at the expense of tens of thousands of New Yorkers. They fear nothing from constituents whose financial sector jobs will disappear if Dodd-Frank goes forward.
4. Enforce free and fair markets by catching bad guys.
It’s clear that a lot has gone wrong with the financial industry. Most of it, however, could have been avoided by enforcing existing laws. If you asked New York Police Commissioner Ray Kelly how to fight a crime wave, he wouldn’t say, “take officers off the beat to write regulations on 1,000 pages of a new criminal law.”
Similarly, the way to stop financial fraud and cheating is to catch the fraudsters, not to put regulators behind desks writing new regulations. `
Let’s look at recent headlines: the collapse of MF Global that eluded the
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Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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