http://www.TakeBackTheFed.com

I mean that question in a very literal way, as in “make a list”. What types of transactions, which kinds of derivatives, what species of contracts are actually useful to the nation and its economy?

Make a list, ban the rest.

There are quite a few industries that actually live by the maxim “What is not authorized is prohibited”. There are places where you can literally find banners and placards on the walls stating The Rule.

“What is not authorized is prohibited”

If something is not properly described, analyzed, documented, filed reviewed, approved, registered, filed again and tracked step by step, it’s prohibited. If it’s not in the binder, you can’t do it. Period. And every time you do anything – that is anything which is authorized by rule #234567ZK in binder L974 or another – you have to log it, report it, file it and send a copy to the regulator.

The nuclear industry does it. All the time. For everything. If a worker has take a crap, he has to take the binder and follow the procedure. “Step 57: enter designated facility. Step 58: check presence of toilet paper, suitable in quantity and quality for the task. Step 59: If you are wearing a belt …” And if anything goes wrong, oh boy. The running joke is when you have an injury in a nuclear facility – like dropping a hammer on your toe – the painful part is not the toe. It’s the 19 investigations and the 332 reports you have to file with the NRC which are going to make you cry

It seems to me that, as far as toxic sludge goes, the nuclear industry doesn’t hold a candle to the financial sector.

Time to apply the same recipe?

For all the handwringing about just what type of regulatory environment is needed, the real scarcity is in the political will to follow through. After all, even the current regulatory scheme could have mitigated much of the current damage if the current administration and its regulatory minions had the desire to use the tools available to them. Much has been made of Greenspan’s Fed and it’s see-no-evil approach to regulation. To which you can add the SEC, a body so asleep at the switch that it took Spitzer as NY AG to apply obscure state laws to attempt to discipline the finance industry. And also the DoJ, which never sees a merger it doesn’t like, antitrust concerns be damned. And the Treasury Dept., so thoroughly captured that its political masters can be narrowed not just to one specific industry but to one specific firm.

All these bodies already have many tools at their disposal, but they didn’t do their job. Giving these departments more rules which they don’t want to enforce, or more authority which they don’t want to utilize isn’t going to solve any problem.

So I humbly suggest that the first step to an adequate regulatory regime is electing a President who actually cares about such a thing, and appointing administration officials who are on the same page. I bet even if you did just this and didn’t change a single law, you’d accomplish 90% of your goals.

So the real question is, which one likes collars and leashes more: McCain or Obama…?

Another fundamental principle needs to be: regulators must be more insulated from the vagaries of politics than they are now. Otherwise, they risk their job every time they take on a powerful political constituency.

Just ask Deborah Rice, former star toxicologist at the EPA.

http://economistsview.typepad.com/economistsview/2008/05/why-did-the-epa.html

The financial debacle is really just a replay of Enron and Worldcom. Flimsy accounting rules and audits, promulgated in no small measure through Joseph Lieberman, are at the root.

Throw in the opacity of the OTC market in derivatives and commodities and we get what we got. Poor, beleagured regulators can’t possibly understand what is going on ? What about the accounting firms ? Regulation is not the only thing that went out the window with the return of the banking trusts. Where have fair and honest accounting standards gone ? What a quaint notion.

The regulators have let the genie out of the bottle, and IMHO it will take more than determination to get it back in.

The fundamental principle needs to be: regulators must be able to understand a banks’ books. Since there is already too much on a banks’ books that escapes regulators’ abilities (and indeed the banks’ own managment’s abilities) to understand, it will take a winding down of several decades before regulators are in the position they need to be.

But by all means let’s begin. There’s an old story of a man telling his gardener to plant a tree. “But,” the gardener says, “it won’t flower for twenty years.” “Then,” replies the man, “plant it right away.”