Treasury's Brave New World Of Financial Innovation

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We’re going to have a lot to say about the costs of Treasury Secretary Hank Paulson’s Blueprint for a Modernized Financial Regulatory Structure. Before that, however, it’s worth noting that there is little to admire about our current financial regulatory structure. Largely a product of the financial crises of the past, the structure was unwieldy, arguably created a bureaucratic structure at odds with the constitutional framework of our Republic and tended to serve the interest of the very financial institutions it sought to regulate at the expense of individual investors and the broader public. The array of regulatory bodies we live with were largely “captured” by the securities and banking industry, although “capture” is probably the wrong term because it implies that they were independent at some point. Many were built to serve the interests of Wall Street, so no capture was necessary.
The best that can be said about the current system is that we have years of experience with it. We understand how it operates, how it fails and what its strengths are. This is a conservative point but one that needs to be made: regulatory innovation inevitably leads to “unintended consequences” and unanticipated costs. At the very minimum, the costs of adjusting to a new regulatory structure need to be taken into account. We may not be risking our lives and sacred honor by declaring the need to dissolve the longstanding financial regulatory bonds, but we may be risking our fortunes.
That said, we’re headed deep into the details of this bold new world Paulson has proposed. The Treasury has released a cheat sheet here. But if you are really ambitious, follow us into the 212 page blueprint. We welcome your insight, of course, in the comments below or via email to tips@dealbreaker.com.

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