Regulation: Wall Street’s Triumph
Published in Les Echos
(France) on 11 April 2012
by François Vidal (link to original)
On April 11, 2007, New Century Financial, the number two “subprime” mortgage lender, went bankrupt. Almost no one remembers, yet this failure launched the crisis of the century. It also revealed, on a larger scale, the disastrous consequences of shortcomings in the American financial regulatory system, which could not prevent Wall Street’s abuses. That happened five years ago, yet the necessary reforms in the American financial sector have yet to be implemented.
Not that Washington hasn’t done anything. On the contrary, many initiatives have begun as part of the Dodd-Frank legislation, such as streamlining the role of regulators, for example, and putting large banks under the watchful eye of the Fed, or even the prohibitions on making speculative transactions — the famous “Volcker Rule.” To this we can add the international progress of the G20 or the Basel Committee, which imposed more rigorous oversight for all banks. On paper, everything has been done.
The problem is that, in reality, few things have actually changed on the other side of the Atlantic. Now, we’ve known for several weeks that the chances that Basel III will apply are slim. Consequently, the future of the “Volcker Rule” is less certain. Wall Street has never hidden its opposition to the bill and Ben Bernanke, the Fed chief, said Monday evening in Georgia that its application raises “a lot of complexities.” Finally, the thorny question of “shadow banking” — the unregulated “hedge fund” financial sector — remains to be addressed. It’s not surprising in these conditions that one of the major subjects of the crisis, systemic risk — meaning the possibility that one major disaster can bring down the entire financial system — raises “a number of concerns” according to Ben Bernanke himself. That’s an admission of failure that should give pause on this side of the Atlantic, where we engage in a real contest on the virtues of the matter. Why reinforce financial regulations or consider cutting the banks in half to protect future shocks in the financial world if Wall Street, the heart of global finance, can ignore these shared rules? It is time for Europe to unite to make its voice heard on these issues and to remind Washington of its role in triggering the crisis that began five years ago.
Not that Washington hasn’t done anything. On the contrary, many initiatives have begun as part of the Dodd-Frank legislation, such as streamlining the role of regulators, for example, and putting large banks under the watchful eye of the Fed, or even the prohibitions on making speculative transactions — the famous “Volcker Rule.” To this we can add the international progress of the G20 or the Basel Committee, which imposed more rigorous oversight for all banks. On paper, everything has been done.
The problem is that, in reality, few things have actually changed on the other side of the Atlantic. Now, we’ve known for several weeks that the chances that Basel III will apply are slim. Consequently, the future of the “Volcker Rule” is less certain. Wall Street has never hidden its opposition to the bill and Ben Bernanke, the Fed chief, said Monday evening in Georgia that its application raises “a lot of complexities.” Finally, the thorny question of “shadow banking” — the unregulated “hedge fund” financial sector — remains to be addressed. It’s not surprising in these conditions that one of the major subjects of the crisis, systemic risk — meaning the possibility that one major disaster can bring down the entire financial system — raises “a number of concerns” according to Ben Bernanke himself. That’s an admission of failure that should give pause on this side of the Atlantic, where we engage in a real contest on the virtues of the matter. Why reinforce financial regulations or consider cutting the banks in half to protect future shocks in the financial world if Wall Street, the heart of global finance, can ignore these shared rules? It is time for Europe to unite to make its voice heard on these issues and to remind Washington of its role in triggering the crisis that began five years ago.