Masters Of The Universe Muse On Regulation Ahead Of Geithner And Darling Plans

As we wait for news on financial regulation today from both the US and UK Treasuries, various survivors of the crisis are throwing their two cents in on the debate.

First up is George Soros in the FT, who, while warning against over-regulation, says that agents selling mortgage securities must have a decent amount of personal risk tied up in the transactions. Known as “skin in the game”, the US Treasury has recommended 5% of the overall transaction – Soros goes further and demands 10%. He also says that the recent debate on derivatives, where many say they should all be traded across a clearing house, also doesn’t go far enough: The issuance and trading of derivatives ought to be as strictly regulated as stocks…In fact, some derivatives ought not to be traded at all. I have in mind credit default swaps… CDS are instruments of destruction that ought to be outlawed.” Hey, don’t sugar-coat it, George!

Then we’ve got Lloyd Blankfein of the booming Goldman Sachs, who have been promising to pay off their TARP funds recently, and now they finally have. Cue fairly convincing grovelling from Blankfein: “we regret that we participated in the market euphoria and failed to raise a responsible voice”. He acknowledged the need for greater regulation too: “Real stability can return only if our industry accepts that certain practices were unhealthy and not in the long-term interests of individual institutions and the financial system, as a whole.”

Least convincing of all was Vikram Pandit, whose cookie-cutter platitudes about the economy on Monday were cheek-draggingly banal. “Policy makers are focused on uniform regulation. The key goals surround regulation of all systemically important institutions”, he droned. He then rather undid his words with his naked desire for the good ol’ days of rampant trading of any old instrument: ”Consumer loans, credit card receivables, student loans, residential and commercial mortgages were packaged into securities and then sold to investors. As we all know, these markets have severely contracted; it is not hard to envision a significant gap in the availability of credit.” The instruments that were dangerous to the economy are going to go – get over it. More annoying still: “Saving more will imply a lower growth rate for the economy”. Is there anything more nauseating than a bank CEO complaining that all the little people are saving their money during a recession?

Cue Darling and Geithner. Check back tomorrow for how the financial world is going to start looking from here on out.

Posted by Jonty Rhodes in Hot Money | June 17, 2009 1:15PM |