7 ms·

Because the SEC and the FED are staffed by the same rotating crew of bankers and politicians that engaged in, endorsed, and continue to profit massively from ex

Because the SEC and the FED are staffed by the same rotating crew of bankers and politicians that engaged in, endorsed, and continue to profit massively from exactly the same behavior. Mary Jo White, Chairwoman of the SEC is a prime example. This "revolving door" is unfortunately nothing new and not limited to the SEC. http://www.businessinsider.com/new-report-about-sec-chair-mary-jo-white-and-revolving-doors-2015-6 http://www.businessinsider.com/new-report-about-sec-chair-ma...

jonknee 10y ago
How would you go about creating a competent banking regulatory system that includes no trained bankers? Once they have gained experience how would you prevent the staff from leaving to more lucrative options?
- tedunangst 10y ago
  Everything I need to know about banking regulation I read in Rolling Stone. Make me the regulator!
  - efng 10y ago
    I'm down for that. You couldn't do much worse.
- pjmorris 10y ago
  Reasonable questions. What incentives would lead a trained banker to rigorously and honestly enforce regulations? What incentives would lead to retaining trained, rigorous, honest people?
  - dilemma 10y ago
    The parent poses good questions and they're rhetorical - instead of disincentivising this, it would be better to accept it and then create an organization with checks and balances to counteract it.
  - rayiner 10y ago
    Mary Jo White isn't a banker, she's a securities lawyer. She was a big deal partner at a major law firm before she went to the SEC. She's almost certainly going to go back to the same job after. All her incentives are aligned with aggressive enforcement of securities laws. Her firm makes money when the SEC comes down on people, not when it rolls over and lets things slide. You can see this starkly in the antitrust world. There was a lot more money in antitrust practice back before the current trend of going easy on antitrust enforcement.
  - sievebrain 10y ago
    What incentives would lead a trained banker to rigorously and honestly enforce regulations? A salary. What incentives would lead to retaining trained, rigorous, honest people? A bigger salary. The difficulties the public sector has in implementing that is one of the reasons regulations so often go wrong.
- littletimmy 10y ago
  By setting up an antagonistic system, I think. A system of checks and balances in which the interests of the employees of the SEC are OPPOSED to the interests of the banks. For example, if the SEC successfully fines JP Morgan a sum of $2 billion, let the key employees of that prosecution them keep $500 million and distribute it among themselves. That way the employees of the SEC have an incentive to be antagonistic to banks.
  - jonknee 10y ago
    > For example, if the SEC successfully fines JP Morgan a sum of $2 billion, let the key employees of that prosecution them keep $500 million and distribute it among themselves. That way the employees of the SEC have an incentive to be antagonistic to banks. Then the SEC will start making a bunch of awful rules that will transfer the wealth of widely held companies to a few regulators.
    - xj9 10y ago
      They should disperse that cash to the taxpayers.
      - jonknee 10y ago
        Well that's what they do now. The only fines that go to people are whistleblower cases and they get a percentage (and aren't government employees in charge of making the rules!).
    - littletimmy 10y ago
      Then the awful rules can be challenged in a court of law, which will act as the limiting power on the SEC. There does exist a mechanism for challenging malicious prosecution in our legal system, and if the corporations feel they are victimized, they can use it. The point, however, is without antagonistic checks and balances in place, you will always run into the "revolving door" problem.
      - sievebrain 10y ago
- eru 10y ago
  You need to radically simplify regulation for that to work. One way is to just regulate banks like any other business without any special laws for them.
  - CountSessine 10y ago
    That's interesting. Would we still dare to offer deposit insurance without the regulations in place?
    - eru 10y ago
      Deposit insurance is part of the problem because it makes customers not pay attention to the security of their bank until it's too late. If you want dead simple regulations, require that banks publish their balance sheet. (Perhaps with a bit of a lag, if you want to give them the opportunity to have some trade secrets. But easier to just ask for all current balance sheet items to be public.) Without deposit insurance customers will take a flight to quality. Or see https://www.bloomberg.com/view/articles/2014-08-27/lending-club-can-be-a-better-bank-than-the-banks https://www.bloomberg.com/view/articles/2014-08-27/lending-c... for how banks might want to make assets match liabilities. Reinsurance companies might offer private deposit insurance for a fee to banks with good enough balance sheets. Right now we have regulators require a minimum quality of balance sheets, but also giving an explicit and implicit guarantees that deposits with banks that meet that minimum quality will not go down. What I want to do is remove that minimum, replace it with more transparency instead, and remote the guarantee. Argument stolen from this book http://www.independent.org/publications/tir/article.asp?a=512 http://www.independent.org/publications/tir/article.asp?a=51... The author is obsessed with figuring out simple regulations that only require a few competent and honest civil servants to implement. That's because competent and honest civil servants are one of the most precious resource. For privatizing companies he suggests: just auction off the company to the highest cash bidder. (If the winner wants to take the former state company public, that's there choice.) For bankruptcy: if creditors and debtor company can't agree on restructuring, just liquidate the company in an auction. (Court ordered debt restructuring takes up precious civil servants, and invites corruption.) The author actually describes the how and why and historical background. He's actually worked in the field.
- nl 10y ago
  Many other countries have functional regulatory systems that don't appear to suffer from the same kind of regulatory capture problems that exist in the US. I realize this doesn't have a specific recommendation, but it does show that it is possible.
tptacek 10y ago
Rayiner's response below more or less refutes this comment directly, doesn't it?

jonknee 10y ago

How would you go about creating a competent banking regulatory system that includes no trained bankers? Once they have gained experience how would you prevent the staff from leaving to more lucrative options?

tedunangst 10y ago
Everything I need to know about banking regulation I read in Rolling Stone. Make me the regulator!
- efng 10y ago
  I'm down for that. You couldn't do much worse.
pjmorris 10y ago
Reasonable questions. What incentives would lead a trained banker to rigorously and honestly enforce regulations? What incentives would lead to retaining trained, rigorous, honest people?
- dilemma 10y ago
  The parent poses good questions and they're rhetorical - instead of disincentivising this, it would be better to accept it and then create an organization with checks and balances to counteract it.
- rayiner 10y ago
  Mary Jo White isn't a banker, she's a securities lawyer. She was a big deal partner at a major law firm before she went to the SEC. She's almost certainly going to go back to the same job after. All her incentives are aligned with aggressive enforcement of securities laws. Her firm makes money when the SEC comes down on people, not when it rolls over and lets things slide. You can see this starkly in the antitrust world. There was a lot more money in antitrust practice back before the current trend of going easy on antitrust enforcement.
- sievebrain 10y ago
  What incentives would lead a trained banker to rigorously and honestly enforce regulations? A salary. What incentives would lead to retaining trained, rigorous, honest people? A bigger salary. The difficulties the public sector has in implementing that is one of the reasons regulations so often go wrong.
littletimmy 10y ago
By setting up an antagonistic system, I think. A system of checks and balances in which the interests of the employees of the SEC are OPPOSED to the interests of the banks. For example, if the SEC successfully fines JP Morgan a sum of $2 billion, let the key employees of that prosecution them keep $500 million and distribute it among themselves. That way the employees of the SEC have an incentive to be antagonistic to banks.
- jonknee 10y ago
  > For example, if the SEC successfully fines JP Morgan a sum of $2 billion, let the key employees of that prosecution them keep $500 million and distribute it among themselves. That way the employees of the SEC have an incentive to be antagonistic to banks. Then the SEC will start making a bunch of awful rules that will transfer the wealth of widely held companies to a few regulators.
  - xj9 10y ago
    They should disperse that cash to the taxpayers.
    - jonknee 10y ago
      Well that's what they do now. The only fines that go to people are whistleblower cases and they get a percentage (and aren't government employees in charge of making the rules!).
  - littletimmy 10y ago
    Then the awful rules can be challenged in a court of law, which will act as the limiting power on the SEC. There does exist a mechanism for challenging malicious prosecution in our legal system, and if the corporations feel they are victimized, they can use it. The point, however, is without antagonistic checks and balances in place, you will always run into the "revolving door" problem.
    - sievebrain 10y ago
eru 10y ago
You need to radically simplify regulation for that to work. One way is to just regulate banks like any other business without any special laws for them.
- CountSessine 10y ago
  That's interesting. Would we still dare to offer deposit insurance without the regulations in place?
  - eru 10y ago
    Deposit insurance is part of the problem because it makes customers not pay attention to the security of their bank until it's too late. If you want dead simple regulations, require that banks publish their balance sheet. (Perhaps with a bit of a lag, if you want to give them the opportunity to have some trade secrets. But easier to just ask for all current balance sheet items to be public.) Without deposit insurance customers will take a flight to quality. Or see https://www.bloomberg.com/view/articles/2014-08-27/lending-club-can-be-a-better-bank-than-the-banks https://www.bloomberg.com/view/articles/2014-08-27/lending-c... for how banks might want to make assets match liabilities. Reinsurance companies might offer private deposit insurance for a fee to banks with good enough balance sheets. Right now we have regulators require a minimum quality of balance sheets, but also giving an explicit and implicit guarantees that deposits with banks that meet that minimum quality will not go down. What I want to do is remove that minimum, replace it with more transparency instead, and remote the guarantee. Argument stolen from this book http://www.independent.org/publications/tir/article.asp?a=512 http://www.independent.org/publications/tir/article.asp?a=51... The author is obsessed with figuring out simple regulations that only require a few competent and honest civil servants to implement. That's because competent and honest civil servants are one of the most precious resource. For privatizing companies he suggests: just auction off the company to the highest cash bidder. (If the winner wants to take the former state company public, that's there choice.) For bankruptcy: if creditors and debtor company can't agree on restructuring, just liquidate the company in an auction. (Court ordered debt restructuring takes up precious civil servants, and invites corruption.) The author actually describes the how and why and historical background. He's actually worked in the field.
nl 10y ago
Many other countries have functional regulatory systems that don't appear to suffer from the same kind of regulatory capture problems that exist in the US. I realize this doesn't have a specific recommendation, but it does show that it is possible.

tptacek 10y ago

Rayiner's response below more or less refutes this comment directly, doesn't it?