As advocates for
shareholder rights
, we strive to make sure our members are heard on
important matters that affect all of our portfolios.
That's why
the White House asked for feedback from The Motley
Fool community
and agreed to answer your questions. Here is the final
installment of our interview with Austan Goolsbee, chief
economist for the President's Economic
Recovery Advisory Board.
Economists have a term for what happened to Washington's
regulatory watchdogs during the financial crisis. What looked
to outsiders like an eight-year nap -- or, less pointedly,
wild indifference or ignorance to Wall Street shenanigans --
was what learned market watchers call a raging case of
"regulatory capture."
Regulatory capture happens when an agency tasked with
acting in the public interest becomes a spokesperson for the
industry it's supposed to be overseeing. In the most extreme
cases, political finagling can completely de-fang the
watchdog. That’s what
happened in the 1880s when the power of the Interstate
Commerce Commission -- which regulated railroad freight rates
-- was watered down under the guidance of Grover Cleveland's
attorney general, who happened to be a former bigwig
railroad-industry lawyer.
When David Gardner and I met with Austan Goolsbee, chief
economist for the President's Economic Recovery Advisory
Board, he sounded the alarm about letting the topic of
financial regulation slip out of the public sphere: "The
farther out of the public eye we are, the less transparency
we have … the more the rules are being
written by the people who are being regulated themselves,"
Goolsbee said.
Where exactly where the regulators when we needed
them?
Red tape, laziness, unclear jurisdiction, obsolescence,
corruption -- we can play the blame game
ad nauseam. But what's clear is that playing hot
potato with the onus of responsibility does not protect
investors and the overall health of our economy from systemic
failures in our financial system.
Fool.com members had a lot to sayabout regulators' weak
oversight of the institutions (and individuals) whose
recklessness brought down the markets. Here are a few
comments David Gardner and I brought to the White House on
your behalf:
Afthought
wrote: "Greater regulation is not the answer.
Enforcement of existing regulations through prosecution and
imprisonment of violators would bring a higher degree of
honesty to the financial world."
Edfinn1 wrote: "[Ensure] transparency. The
key to risk evaluation and reasonable risk taking is
transparency. Derivatives are securities and should require
at least the same levels of disclosure and transparency for
offerers, underwriters and sponsors."
LessGovernment wrote: "Congressional legislation and
lack of oversight had at this point put the entire economy
on a course to disaster, and -- surprise surprise -- that
is just what America got … Somewhere
along the lines, members of Congress forgot why they are in
Washington."
The White House's approach to better
policing
President Obama's
regulatory reform proposal(links to .pdf document) takes
the regulatory power that had been spread out across a
handful of agencies and puts control under a single roof and
with one central agency. Included in the proposal are plans
to:
Here Goolsbee describes the new regulation regime and why
the administration says that the right kind of oversight is
good for individual investors.
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