National Economic Council Director Lawrence Summers laid out five principles for re-regulating the financial markets:

1. The government must have the authority to take over and liquidate failing nonbanking financial institutions.
2. Regulators must be able to make certain that financial institutions have enough capital to weather crises.
3. Regulated entities must not be able to choose their regulators,
4. Regulators should not have to fight each other for jurisdiction.
5. The interests of consumers must trump the interests of regulated companies.

Too bad these were mostly ignored over the past 15 months . . .

>

Previously:
Larry Summers: Wrong Man for the Job (April 4th, 2009)

http://www.ritholtz.com/blog/2009/04/summers/

Source:
Summers Deflects Criticism of White House Intervention
JONATHAN WEISMAN
WSJ, JUNE 12, 2009, 5:10 P.M.

http://online.wsj.com/article/SB124484050926810961.html

Category: Bailouts, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

27 Responses to “Re-Regulating the Financial Markets”

  1. mark mchugh says:

    Can we start by removing Jeff Immelt from the Federal Reserve’s board of Govenors? How can the CEO of a company with $1.6 million in debt per employee possibly represent the public’s interest?

    http://www.newyorkfed.org/aboutthefed/org_nydirectors.html

    No, we’ve got Jeffy and two vacant spots.

    When did Pepsi’s Nooyi leave?

  2. mark mchugh says:

    I nominate you, Barry.

  3. call me ahab says:

    4- a number so nice- you used it twice-

    most important principle-

    “The interests of consumers must trump the interests of regulated companies.”

    that can be principle 1 -5- because by doing that they presuppose the other 4 principles

    ~~~

    BR: heh heh — fixed.

  4. CNBC Sucks says:

    Ritholtz, let me surprise everyone by taking a somewhat Libertarian point of view to the question of financial market regulation. I propose that the best form of regulation is:

    1. Remove all guarantees – explicit or implicit – that the government will rescue ANY financial institution from its own f*ckups, other people’s f*ckups, acts of God, or any other damned thing

    Darwin is the greatest regulatory mechanism known to man, or the universe, for that matter. The Fed and the Treasury have long coddled the rich and powerful (but stupid) from the forces of nature.

    To paraphrase Joey Schumpeter, everyone has elites; the important thing is to change them from time to time…

  5. tdotz says:

    4. = 1-5 like ahab says. The interests of consumers must trump the interests of regulated companies

    But please, when did I become merely an item of consumption to my government?

    Citizen, please.

    4. The interests of CITIZENS must trump the interests of regulated companies.

    And note, legal fictions (corporations) were granted no rights whatsoever in our constitution.
    Yet like radicals everywhere they claim many of them with no justification except a loud voice.

  6. Chief Tomahawk says:

    Wow. Larry has reinvented the wheel there. Special interests and lobbyists will just whittle away those safeguards like they did before and we’ll be right back again where we are now. That is unless no patsies can be found for securitized products. Kind of like the old west where the hustling medicine man shows up with the magic elixir which gives everyone a sugar high, only to find out by the time the high wears off the good doctor has left town.

  7. Moss says:

    @ahab, tdoz

    Right u are.

    We should remove the term consumer from our lexicon and replace it with citizen.

    I hate being referred to as a consumer. I am not a consumer as that is an action not an identity.

  8. BR,

    isn’t “Larry Summers” the same dude you’ve been ripping on throughout this latest episode of Economy Ramp ‘n Crash?

    and, now, you’re, merely, reposting his fresh tripe ?
    ~~
    past that, yes, we should know that “our betters” think of us as “Conned-Mooers” (consumers). And, really, why shouldn’t they? If we acted the part of Citizen, many of these Vermin would be stretching Rope, not the Truth, for a ‘living’..

    ~~~

    BR: Good point — I will add this so my views are clearer.

    Larry Summers: Wrong Man for the Job (April 4th, 2009)
    http://www.ritholtz.com/blog/2009/04/summers/

    His role in team O makes it mandatory I consider what he says . . .

  9. fusionbaby says:

    What an insult… we aren’t consumers (that is like referring to a tree as “a root”) . The correct mantle within the economic category is “producer”. Producer stands for survival, competence, causation, exchange, growth, etc.—all of the ingredients necessary to build a country and keep it growing. Better than citizens would be, “productive or producing citizens”.

    We “producer/citizens” need to pull all of the immoral, misguided people out of leadership positions and instate these positions with educated, ETHICAL leaders that will not cowtow to the parasites (financial, real estate and insurance sectors who just bleed the real economy) and will support their true constituents… the people, who make up the real economy. We need to break this plutocracy, oligarchy, kleptocracy or whatever you want to call it, if we ever want to have a recovery and a country that can regain its productivity and status in the global game.

  10. alfred e says:

    What a great batch of comments. All on target.

    Is Summers for real?? His recs are a great start.

    And that’s what triggers my cynical side. WTF? Why haven’t we done something? Already.

  11. call me ahab says:

    MEH Says-

    “If we acted the part of Citizen, many of these Vermin would be stretching Rope, not the Truth, for a ‘living’..”

    short and powerful statement hoffer

  12. Moss says:

    Other than voting how can we exercise the part?

    The process to neuter the ‘citizen’ part with lobbyists, Corporate PAC’s, advertising and MSM dribble has been through.

  13. manhattanguy says:

    I am with you CNBC Sucks. To hell with public companies requiring handouts.

  14. Mike in Nola says:

    How about they stop appointing Kenneth Feinberg to various posts where he’s overseeing his buddies and clients?

    He seems to have as much insider clout as Bill Gross.
    I remember reading an article in the ABA Journal which talked about how he worked nonstop during the bank crisis in 2008 — representing banks. Wish I had saved the article.

  15. Thor says:

    Moss and Ahab – I would posit that nothing much is going to change until the average guy is feeling real pain. The kind of pain we say in The Depression. Seems liket the powers that be might be able to pull off this re-inflation of the economy. They did it 9 years ago, it’s not totally inconceivable that they could do it again is it? I think we could all agree that if they do indeed succeed on getting the economy mostly back on track, all that will happen in the end, is that we push the real day of reckoning forward in time. The system is broke, we all know that, doesn’t look like they’re going to do much about it. So what’s a person to do?

    Personally, I’m of the opinion that this re-inflation game gives those of us who are paying attention even more time to plan for the real day of reckoning. Imagine if you could have known that The Depression was coming in the late 20′s. Think of all the money you could have made with this knowledge. The companies you could have invested in, the money you could have moved out of equities when the time was right. I’ve read a lot of histories of The Great Depression and one of the things that struck me is that there were indeed people at the time who knew what was going on, invested accordingly, and made a mint in the process. Why can’t we do the same? :-)

  16. Mike in Nola says:

    Forgot to post a link to his firm’s site:

    http://www.feinberggroup.com/

    Check out the client list.

  17. call me ahab says:

    thor-

    only one investment principle-

    buy low and sell high- so simple that a child can understand-

    it’s the timing that kills you

  18. Steve Barry says:

    Let’s say, throughout history, the mean P/E on the S&P for as reported earnings was about 15. Then let’s say our system shifts dramatically away from free market capitalism, with creative destruction, to a system more like socialism, where incompetence is bailed out. Would you pay a higher or a lower P/E going forward? Would you pay 130 times earnings like today? Even with a robust bounce in earnings forecasted, even if the market stays flat for 1 year, we will have a P/E around 30, a bubble P/E, next year. Compelling, no?

  19. Steve Barry says:

    It’s so weird that every time I talk about a certain effect of bailouts on the market P/E going forward, my post gets eaten.

    ~~~

    BR: Watch for spam words like Casino, socialism, etc.

  20. Moss says:

    @thor,

    Yes, the timing is the key and finding the correct instruments. Never forget the tale of Jesse Livermore.

  21. Mike in Nola says:

    Seems I’m not the first to notice an apparent conflict:

    “No. 7: Hire Kenneth Feinberg’s law firm. The White House has tapped this Washington attorney to be “special master” overseeing the pay practices at TARP babies. Turns out the client list at Feinberg Rozen LLP includes several of them, such as Citigroup, Merrill Lynch and AIG, according to the firm’s Web site. You can’t have too many friends in high places should you ever need another dip at the taxpayer trough. ”

    From Banks Trade TARP for Bonuses, Debauchery, Jets: Jonathan Weil

    http://www.bloomberg.com/apps/news?pid=20601039&sid=anERpNRXfnss

  22. ben22 says:

    Thor,

    If I’m to read your comments lately I’m thinking you fear what some of the others of us fear as well which is a very powerful credit deflation spiral.

    So, I have to ask, when you say this:

    Imagine if you could have known that The Depression was coming in the late 20’s. Think of all the money you could have made with this knowledge.

    I want talk about Livermore b/c people already did above.

    Don’t you believe that if the credit deflation takes hold, the best place to be will be in the safest cash? Good luck trying to collect on some ultrashort while credit is getting sucked right out of the system. I think the goal, if it happens, will be to keep money, not to make money.

    Re: Summers and Regulation. seems that we are in more of a fear environment right now, so we can regulate all we want but when people are afraid they will keep a lot of secrets.

    I heard the other day that Summers could become the Fed chair when BB is done. That, to me, is a scary thing. All I could think back to was that TIME mag cover with him, Rubin, and Greenspan, the men who can save us, yet save really meant: destroy.

    MEH,

    What a great post up above.

  23. Thor says:

    Ben – I would have to agree with you on all your points. Yeah, I’m more of the deflation persuasion than hyper inflation. No real strong opinion on it though, more of just a leaning. As I said in another post, you never hear anyone talking about how prices are going to be stable moving forward, so either way we’re screwed.

    I’m also with you on the keeping money, not making it. I’m most definitely not of the “quick buck” mindset. I think the best way to obtain wealth (at least for me) is to do it the old fashioned way – save, spend frugally, save, earn a decent living, save – did I mention save? :-)

  24. matt says:

    This is hilarious. Read 1 and 2 again:

    1. The government must have the authority to take over and liquidate failing nonbanking financial institutions.
    2. Regulators must be able to make certain that financial institutions have enough capital to weather crises.

    OK, so if you are not a bank, the government should be able to liquidate you. If you are a bank, the government should be able to bail you out.

  25. CNBC Sucks says:

    Larry Summers = “Casino Socialism”

  26. CNBC Sucks says:

    Ritholtz, why can I write “erection” but not that “c*sino” above? It seems to me that “erection” is also a spam word, as in “Ahmadinejad stole the erection”.

    As you know, I tried posting “Larry Summers is c*sino s*cialism” three times and WordPress did indeed eat the comments.

  27. johnbougearel says:

    Barry

    These 5 principles laid out by Summers are weak and blandly stated. I will be addressing some of these regulatory issues issue more fully later this week in a report titled ” The Grayson Glass-Stegall Act of 2009 aka The Compartmentalization of Decay in the Financial System”