I submitted my new chapter for the paperback version of Bailout Nation (July 6, 2010). It contains a checklist to evaluate the upcoming — and as of yet, still ill defined — re-regulation of the financial sector.
I tried to keep it realistic, discussing issues such as derivatives regulation, capital requirements, and leverage.
However, I kept wistfully thinking about the real fixes that were needed — the things that I would do if I had unlimited power (trust me, that’s something you don’t want to see). I avoided (or only mentioned in passing) these politically impossible fixes.
But that doesn’t mean we can’t put them in a wish list . . .
1. Investment Houses Partnerships: Goldman, Morgan Stanley, Merrill Lynch — turn them back into partnerships. That means the partners all have unlimited joint and several — meaning personal — liability for any losses.
2. Public Track Records of Pundits: I was astonished to see the same terrible advice on the TV during the entire market collapse. The spokesperson for a trillion dollar firm recommended buying the dip — the whole way down! Buy Dow 14k, buy 13k, buy buy buy at 12, 11, 10. All the way down. But there was never any mention of the prior horrific calls.
My impossible solution? Mandate that all TV and radio stations reveal the most recent appearance forecast, stock picks, and commentary.
3. Return to the Specialist System: The Nasdaq-afication of the NYSE turned out to be a terrible mistake. We want human specialists matching orders, making a market, stepping in during a collapse.
4. Encourage More Short Selling: Just about every major scandal of the past 2 decades has been uncovered by shorts. The Uptick rule is fine, but all of the other limitations on short selling are counter-productive.
5. Outlaw Bank/Investing Firm Lobbying: At the very least, the TARP money should have come with a 2 year moratorium. In the future, I would like to see extreme constraints on lobbying dollars — (Hey, I told you it was a wish list).
6. Campaign Finance Reform: We used to call the purchase of politicians’ votes graft. Today, it is called campaign donations. The corrupting influence of money in politics has led America to a very sorry political state. The solution is a constitutional amendment for public financing of elections — to get the corrupting influnce of money out of DC.
7. Not-For-Profit Exchanges: The exchanges have foregone the individual investor. Instead, they are chasing fees from high frequency traders and hedge funds.
8. Decimalization: Give up the decimals, and return to fractions. This would allow investment houses trading desks to earn a decent profit. And that might reduce their need for reckless speculation.
9. Corporate Whistle Blowers Fund: A legitimate incentive to discover and blow the whistle on various companies. The IRS does this — a percentage of any fines and recovery get paid to the person who discovered the wrongdoing.
These are the effective things that a benevolent dictator/philosopher king could easily implement, but in our messy, corrupted democracy, they don’t stand a chance . . .