Common Sense Reform

In contrast to the President's faith-based Financial Services Reform package, sensible Financial Services reform would be ground in steps that would have clearly been helpful if in place over the past few years. Such reform would likely contain the following five elements:

• Too Big to Fail is Too Big: No single company ought be allowed to control more than a few percentage points of GDP. No single company ought be allowed to control more than a fraction of a percentage of any government insurance program. (Including the PBGC, which may well be the next bubble a burstin'). I continue to believe that the FDIC no longer serves any earthly good, but that is a more radical sell. At the least, there should be strict transparency requirements around all government insured institutions and those they who do business with them, and clearly defined limitations around aggregating, and leveraging, taxpayer risk.
• Regulating the Regulators:If we must create a new Government agency, it ought to monitor, evaluate and report on the costs, benefits, risks and consequences of existing regulatory policies.
• Derivative Ducktyping: Labelling any particular activity as a "derivative" ought not change its tax or regulatory profile. Selling CDS is selling insurance, buying TRS is buying on margin, etc.
• Protecting Vulnerable Investors: In deference to Senator Snowe's concern, market participants ought be allowed to self-identify as vulnerable. Self-identified vulnerable investors would be required to hire Brokers to represent their interests in transactions with Dealers.
• Educated Consumers: A licensing process, analogous to a driver's license, should be required of anyone who would like to participate in financial markets, whether by buying stocks or taking mortgages, etc.

These five elements -- preserving fairness, transparency and competition -- embrace the traditional spirit of regulation in our economy. The five elements proposed by the President, reflect a very different spirit.