Why is it so hard to regulate Wall Street?

As I come back after a week of break, there are 2 hot issues I see on most blogs (three actually, third being Krugman’s article on state of economics, but is not really an issue) :

1) One year after Lehman Bankruptcy
2) Financial Regulation biting the dust after much talking about doing this and that in initial crisis days.

I think both are quite interconnected. Lehman Bankruptcy points to to the urgent need to look at the role of finance in the economy but we are not seeing any lessons as far as point 2 is concerned. As eco and markets recover, the large number of people are feeling wall street is likely to remain scott-free. I have always felt the same and the feeling is not great at all.  Here are a few links:

As far as one year of Lehman is concerned, here are a few links:

  • Richard Fuld, the ex CEO is having a hard time
  • A story on Lehman’s ex-employees
  • Greenspan thinks another crisis is on the cards
  • Joy Nocera of NYT
  • Dr Reddy’s Interview (for an Indian perspective) Unfortunately, RBI criticisers are back (see this, this, this and many more to follow). As crisis has eased this was pretty much expected as well. The RBI criticisers’ model central banks/regulators have struggled bigtime in this crisis and there is no clarity on what the future holds. So plain criticism will not work. We need some workable suggestions as well. Earlier the criticism was simple – see Bank of England, FSA etc etc. Now, we can’t look upto the same.Whether the critiques like it or not, RBI has fared much better in this crisis (which is usually the case with RBI). I have been reading a lot of speeches of many central bankers and am surprised by the amount of confidence they have in given the poor state of their economy. In that context, if RBI speaks a bit about the efforts of RBI in the crisis, it is not that bad really.

    Again the idea is not to say RBI does not need reforms. All institutions do. But the reform path is just now known at this point of time. RBI does too many functions but has done them well. Criticism of RBI will not work as it has been given a mandate by the govt and is doing it in its best capacity. What is instead needed is to talk about setting up alternative institutions. And debate over how will they achieve the RBI functions. For instance, take the case of a seperate debt management office. There are econs on both sides and there is no clarity really. The idea is great but hows need to be fixed. There is a need to think on these lines than just plain criticise.

One Response to “Why is it so hard to regulate Wall Street?”

  1. Pravin Says:

    why not probe the role of the govt in the economy?. everyone loves competition for services like mobile phones or color tvs etc. everyone loves the fact you can choose the restaurants that provide the best services -all driven by competition.
    why is everyone mum about the role of the govt in the monetary system.why is it difficult to point out that the govt has a monopoly over money and like anything the govt does,monetary policy being incentivized neither by profit nor by loss, is inefficient and bound to fail.

    why are govts afraid of competing currencies?.why cant private currencies exist?. its all well to blame greedy capitalists but the govt itself is a toxic asset.no entity can run humungous deficits and still be considered a going concern. even friedman wanted the fed to be abolished in his 1985 speech.it is obvious that the bureaucrats and politicians are subject to the same greed/fear/incompetency that the businesses face.no supergoverment regulator is ever going to be incentivized to prevent future bubbles/monetary mishaps because they are simply not based on profit and loss.(especially loss).

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