http://www.bloomberg.com/apps/news?pid=20601087&sid=aPa3d0C4ewdo&refer=home
All this talk of "global" this and that has me concerned, especially with this administration, I do not like the idea of a new global currency as China and Russia are calling for and I do not like the idea of a new global financial regulatory body.
Now I am no expert, but what really is bugging me with this proposal on bringing the hedge funds, private equity firms, and derivatives markets under regulation is:
1) It isn't the private equity firms and hedge funds that are all collapsing and on Capitol Hill with their hands out. Yes, some of the firms are liquidating because they made bad bets on the markets, or panicked investors are pulling out their money, but otherwise, the major private equity firms and hedge-funds are doing okay, or even thriving. The private-equity firms and hedge-funds, the firms so unregulated they have been criticized as being the equivalent of "unregulated banks" by the CEO of PIMCO, Bill Gross, are the ones doing okay overall it seems. Instead, it is the far more heavily-regulated investment banks, banks, mortgage companies, and insurance companies that are in trouble, from all of the major investment banks coming to the point of collapse, to AIG almost going under, etc...
2) The critics are acting as if all these big firms took risks knowingly, with other people's money, and that only if adequate regulation had been there, the government regulators would have seen it and been able to put a stop it.
But this goes against the very nature of big corporations and firms from my understanding. Entrepreneurs are risk-takers. Big corporations abhor risk and do everything they can to cut it. This is why one almost always finds big corporations trying to undermine the free-market. No heads of a big corporation will take a huge risk if they identify it to be a huge risk.
It was widely assumed, until the financial crises occured, that we had reached a period in which capital was being allocated very efficiently, and risk was spread out far more.
And from my understanding, our modern financial system does spread risk out very well, but no one realized everything was all ultimately tied into the real-estate market, which went into a bubble, and then burst, thus almost bringing the system down.
So my point is this: if the big corporations, banks, financial firms, etc...could not recognize the enormous risk they were all taking on, then why on Earth should anyone think government regulators would be able to spot such risk as well??
The article says they want more regulation to prevent "excessive risk-taking" by firms. Well if the firms can't recognize they're risk-taking, I doubt the government would either.
3) Regulation and oversight are not the same thing, and more regulation does not automatically increase oversight. The SEC, as it is, can only keep track of a fraction of the information on the financial markets that the current level of regulation requires the financial markets to release. This term "increase oversight" is like the government using the word "invest" in place of spending money. Increasing regulation will not necessarily increase oversight. The financial deregulation that occurred under Reagan, for example, increased oversight of corporations.
Regulation can be one form of oversight, and even then it depends.
4) Won't global regulation infringe on national sovereignty? And judging by the way government institutions function and evolve, I'd bet this thing will become one big mess and corrupted beyond belief.
All this talk of "global" this and that has me concerned, especially with this administration, I do not like the idea of a new global currency as China and Russia are calling for and I do not like the idea of a new global financial regulatory body.
Now I am no expert, but what really is bugging me with this proposal on bringing the hedge funds, private equity firms, and derivatives markets under regulation is:
1) It isn't the private equity firms and hedge funds that are all collapsing and on Capitol Hill with their hands out. Yes, some of the firms are liquidating because they made bad bets on the markets, or panicked investors are pulling out their money, but otherwise, the major private equity firms and hedge-funds are doing okay, or even thriving. The private-equity firms and hedge-funds, the firms so unregulated they have been criticized as being the equivalent of "unregulated banks" by the CEO of PIMCO, Bill Gross, are the ones doing okay overall it seems. Instead, it is the far more heavily-regulated investment banks, banks, mortgage companies, and insurance companies that are in trouble, from all of the major investment banks coming to the point of collapse, to AIG almost going under, etc...
2) The critics are acting as if all these big firms took risks knowingly, with other people's money, and that only if adequate regulation had been there, the government regulators would have seen it and been able to put a stop it.
But this goes against the very nature of big corporations and firms from my understanding. Entrepreneurs are risk-takers. Big corporations abhor risk and do everything they can to cut it. This is why one almost always finds big corporations trying to undermine the free-market. No heads of a big corporation will take a huge risk if they identify it to be a huge risk.
It was widely assumed, until the financial crises occured, that we had reached a period in which capital was being allocated very efficiently, and risk was spread out far more.
And from my understanding, our modern financial system does spread risk out very well, but no one realized everything was all ultimately tied into the real-estate market, which went into a bubble, and then burst, thus almost bringing the system down.
So my point is this: if the big corporations, banks, financial firms, etc...could not recognize the enormous risk they were all taking on, then why on Earth should anyone think government regulators would be able to spot such risk as well??
The article says they want more regulation to prevent "excessive risk-taking" by firms. Well if the firms can't recognize they're risk-taking, I doubt the government would either.
3) Regulation and oversight are not the same thing, and more regulation does not automatically increase oversight. The SEC, as it is, can only keep track of a fraction of the information on the financial markets that the current level of regulation requires the financial markets to release. This term "increase oversight" is like the government using the word "invest" in place of spending money. Increasing regulation will not necessarily increase oversight. The financial deregulation that occurred under Reagan, for example, increased oversight of corporations.
Regulation can be one form of oversight, and even then it depends.
4) Won't global regulation infringe on national sovereignty? And judging by the way government institutions function and evolve, I'd bet this thing will become one big mess and corrupted beyond belief.
