Thursday, June 23, 2011

Regulatory Accountability

The New Yorker has a well-reported piece from George Packer on the Raj Rajaratnam insider-trading case. Most of the details we already know, but Packer makes an excellent point late:
…nearly three years after the financial crisis, Wall Street still relies on reckless practices to create wealth. An investment banker recently described the meltdown, with some chagrin, as “a speed bump.” The S.E.C. remains so starved of resources that its budget this year falls short of Raj Rajaratnam’s net worth at the time of his arrest. The agency lacks the technology to keep track of the enormous volume and lightning speed of algorithmic trades, like the ones that caused last May’s “flash crash” of the stock market. The market has become more of an exclusive gambling club for the very rich than a level playing field open to the ordinary investor.

As for the larger financial system, in Washington, D.C., implementation of the Dodd-Frank regulatory reform law has been slowed, if not yet sabotaged, by lobbying on the part of the big banks and a general ebbing of will among politicians. Neil Barofsky, the former inspector general of TARP, said, “Is Tim Geithner going to have the political will to take on the size and interconnectivity of the largest banks? Nothing in his previous career suggests he would.” Barofsky went on, “It is a remarkable failure of our system that we’ve not addressed the fundamental problems that brought us into the financial crisis. And it is cynical or na├»ve to imagine it won’t happen again.”

The Rajaratnam case, like the Bernie Madoff case, is an example of people falling in love with stories. Thematically, the Rajaratnam case and the Madoff case and the financial crisis seem very closely related; you could have a hell of a time presenting the similarities and complexities in an English time. The actual causation is harder though: Rajaratnam and Madoff are unimportant in comparison to the financial crisis, and what fed them was completely different—housing (and a nonperforming economy) vs. inattentive rich people vs. fraudulent stock practices. Similar but separate, in truth.

Nevertheless it is important to prosecute those wrongdoers that you can, if only to give the general impression that it’s all under control. Though of course it isn’t: the people who created all of these toxic products are unrepentant and wealthy. It’s odd the special lack of accountability that bankers seem to enjoy. In England, you have blatant cases of banks aiding money laundering (read the story for several laughable examples), and I don’t doubt that similar occurs in the U.S. Anything to gain a bit of extra working capital, hm? Meanwhile the big regulatory news is that the FTC is continuing its antitrust investigation of Google. I appreciate the regulatory proactivity, but I wonder if they might, perchance, examine the parts of the economy that are actually fucked up as opposed to the ones that might, maybe, become fucked up.

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