The Committee on Capital Markets Regulation reveals their world-changing recommendations in detail today. Damian Paletta has a preview on one of the Wall Street Journal blogs. The committee is "...an independent and nonpartisan 501(c)(3) research organization dedicated to improving the regulation of U.S. capital markets," which exactly the kind of languages that makes us immediately suspicious. We are even more alarmed when it looks like L. Ron Hubbard managed to sneak into the meetings by shuffling the letters in his name. (Despite the fact that we are highly suspicious of Columbia, we're sure he's eminently qualified, but if he starts claiming to be the reincarnation of Cecil Rhodes or recruiting the "Commodore's Messengers" we are going to get worried fast).
Likewise, we do sort of have to wonder about a financial system fix that includes the recommendation to "Ban or limit high-risk mortgages from being securitized." Oh yes. Those pesky high-risk mortgages. Would those be from borrowers with FICO scores below X? (Maxine Waters will have a cerebral embolism when she sees the "discriminatory effect" that is likely to have on interest rates). Perhaps mortgages from specific geographic areas? (Oops).
Then there is the recommendation that we "Relax acquisition rules to make it easier for private equity firms to pump money into the banking sector." That is going to go over like an imperial asston of squid at a Red Wings game.
"Given the concentration of risks to the government and taxpayer, we recommend that large institutions be held to a higher solvency standard than other institutions, which means they should hold more capital per unit of risk." Easier said than done.
Of course, the Committee is charged (or has charged itself) with a Herculean task. Reforming the financial system is hard because of the wide and deep field of interests that will be harmed. Like hypocritical parents ranting against pre-martial sex (ever wonder why your birthday is half a year after the wedding, Cindy?) everyone screams about irresponsible lending and risk-taking after a crisis. The reality is that the combination of loose credit and high fees for bankers gets politicians re-elected. One need only look at the current reflating attempts to realize that the pull of those forces is irresistible.
Further, measuring risk is (conveniently) undefined by the Committee. At least in the MPAA approved trailers. This is no easy task and any measure a regulator suggests will be both vague and subject to the bleating of interests who may be harmed. Like it or not, AAA rated MBA and the CDOs that aggregated them were in full compliance at the time with the regulatory schema that purported to limit their risk. We wonder what will change that isn't a response to the "last crisis."
At the same time, the Committee makes some important points, which will, we have no doubt, be unceremoniously ignored and discarded once it is obvious that publicly pillorying bankers is what wins votes in the United States, not creating the "Financial Company Resolution Act."
How to Fix the Financial System [The Wall Street Journal Blogs]