Quote Of The Day
I was at lunch with colleagues today, and the question was raised as to why regulators couldn’t see the financial crisis coming due to all the “creative” financial instruments. To me it was clear, and I threw out a slight paraphrase of an old saying:
Those who can; produce. Those who can’t; regulate.
Now, it’s undoubtedly more complex than that. Just as they say generals spend time preparing for “the last” war, I would say that regulators try to address “the last crisis”. While they were trying to solve the incentives that created Enron with SarbOx, people with money on the line were looking for ways to exploit the rules of SarbOx. The system is structured to reward those who find the loopholes in the system.
But I think it’s also clear that the leading lights of the world aren’t drawn to the comparative low pay of government employment. Those who are willing to risk more get the bigger rewards.
The problem is the system. If there were LESS constraints, there would be less of a presumption of safety in the market. That presumption of safety and stability is one of those things that allowed people to become so highly leveraged. If we didn’t live in a world where we assumed that the SEC makes us safe, might we take a little more care in how we invest?