Banking Law

Dead Man Taking

A couple of weeks ago, former disgraced Wall Street analyst Henry Blodget, a man flushed from his perch by The Sheriff of Wall Street, Eliot Spitzer, sat down with the former disgraced Attorney General and Governor of New York and conducted a civil discourse about the origins and possible solutions to the current financial crisis. Blodget broke down the interview into six bits and posted them Yahoo Finance (starting here). I was sidetracked last week and am only now getting around to posting about the interview. In the blogosphere, if you're a day late, you're a dollar short. On the other hand, it's evident to regular readers that I violate many of the rules of the self-proclaimed experts of blogging. It's just the way I roll.

One of my favorite portions is the one in which Spitzer reiterates a theme he's propounded recently in his Slate column: we don't need new regulators or new powers for the existing regulators. What we need is for the existing regulators to do their jobs. With every financial crisis, there appears to be a reflex reaction of those who love big government to make big government even bigger. They seem to think that bureaucrats in a spanking new agency will act differently from the way in which bureaucrats in legacy agencies have acted previously. Through governmental action, human nature will be perfected or at least corrected. All we achieve is to concentrate more power in another federal agency where it's exercised as imperfectly as it has always been exercised by flawed human beings.

I listened last week to the giant brained David Kotok discuss the banking crisis of 1907. That collapse led to the creation of the Federal Reserve Board, an entity that was designed to ensure that no such a banking collapse would ever again occur. Worked like a charm, didn't it? About as well as the creation of the FDIC nearly 30 years later ensured that there would never be another "bank run." It certainly prevented a run on IndyMac, eh?

I also like Spitzer's acknowledgment that preemption does make sense from the regulated entities' perspective. In other words, national banks are not purely evil because they desire to have a single set of rules governing the playing field. I doubt whether he would have conceded that point when he was toe-to-toe with the OCC. On the other hand, it is also difficult to argue with his contention that competition keeps regulatory agencies (as it does other types of entities) on their toes. If it leads in some cases to a "race to the bottom," it's also true that eventually, the bottom feeders are legislated out of existence. 

If there are two good examples of men who've seen the limits of human hubris, it's Blodget and Spitzer. As one commenter said in response to the usual chorus of Spitzer bashers (of which this blogger has been a long-time member), "I like the guy since he fell off his horse." We all might benefit from listening to a few more humbled former masters of the universe whose perspective has been "purified" by their fall from grace, and who no longer grasp for power based upon anything other than the quality of the insights they offer. I don't agree with everything either man has to say, but I enjoy the fact that former claymation death match opponents can sit down and have a civil discussion of issues of such critical importance and offer some seemingly honest perspective. To me, that's certainly preferable to the "sound bites of fury" and "obscenity-laced tirades" that have been prevalent lately.

Full post as published by Bank Lawyers Blog on August 24, 2009 (boomark / email).