This morning I ran my regular Saturday morning errands (plus a few), seven stops in all. While I was driving, I listend to NPR, as usual, and caught a snippet of one of This American Life’s series on the financial crisis.
I don’t know if you’ve listened to any of them but I think they’re probably the best journalistic coverage of the subject bar none. They’re funny, informative, absorbing, and manage to avoid either apologetics or polemics. Highly recommended.
The particular program I heard this morning was on the regulators. Its transcript is here. The episode can be listened to here.
I wonder if the folks on This American Life realize that the story, as they’ve reported it, completely demolishes the case for additional regulation as a means of preventing similar meltdowns in the future? As they tell the story, the reason for the collapse of AIG, the insurance giant, wasn’t because the regulations were inadequate to the task or the regulators didn’t have the power to correct the problems but because the way our system works now
- Companies pick their regulators rather than the other way around.
- AIG specifically picked the weakest regulator.
- Predictably, the OTS, the regulator the AIG picked, screwed up and didn’t regulate it properly. According to the OTS, they had the knowledge, power, and ability to head the meltdown off back in 2004. They just screwed up.
To my eye it doesn’t look as though additional regulations will solve that problem. More fundamental change is what’s needed.
Dave,
I’ve been listening to them as well and agree it is the best journalistic coverage on the financial crisis. I’m a regular listener of the NPR “Planet Money” podcast, which is done by the same people and equally good. If you haven’t listened to it, I highly recommend it. It’s on itunes or at npr.org/planetmoney.
Dave, you don’t think a new regulation stripping firms of the ability to pick their own regulator would go a a long way towards fixing the problem? Especially if said regulations removed some of the perverse incentives involved for regulators to look the other way (it’s been a few months since I heard the program, but weren’t regulators promising friendly (read: lax) treatment to regulatees because the regulators got larger budgets the more regulatees they had?)
Fixing those problems should broadly fall in the category of “more regulation” (or at least “tighter regulation”) shouldn’t they?
I would distinguish between “more regulation” or “new regulations” on the one hand and “regulatory reform” on the other. We need fundamental regulatory reform not new regulations, enforced as laxly as the old ones. What I’m hearing being discussed is new regulations.
And, as I’ve said before, our regulatory system needs to take into account the incentives of the regulators as well as those of the organizations they’re supposed to be regulating.