Yes, I know we are not even done with the first quarter, but I am highly confident this whopper will withstand the test of time.
From the New York Times:
Mr. Paulson is clearly taking a stand against critics who support even stricter regulations, while rejecting any notion that the crisis in financial markets or the collapse of Bear Stearns can be laid at the administration’s doorstep. In a draft of a speech to be delivered Monday, he declares: “I do not believe it is fair or accurate to blame our regulatory structure for the current turmoil.”
So what does Paulson think caused the credit crisis? Martians? Challenging astrological transits? Society-wide overuse of antidepressants dulling normal risk aversion? Osama bin Laden? Short sellers?
Narrowly, Paulson isn’t wrong. Former Fed chairman William McChesney Martin said the Fed’s job was to take the punchbowl away when the party started getting good. The Fed’s job description hasn’t changed since his day, and if the Fed had thrown a little cold water on the markets a few years ago, we wouldn’t be in this mess.
That means that regulatory structure isn’t the problem; the real culprit is dereliction of duty by the regulators. And fish rot from the head. If you aren’t willing to hold the regulatory framework responsible, Mr. Paulson, that means you need to take a hard look in the mirror.
The article quotes a kindred spirit:
“The Fed oversaw this meltdown,” said Michael Greenberger, a law professor at the University of Maryland who was a senior official of the Commodity Futures Trading Commission during the Clinton administration. “This is the equivalent of the builders of the Maginot line giving lessons on defense.”
We gave our assessment of the misnamed reform plan yesterday in “Paulson’s Cosmetic, Cynical Financial Regulation ‘Reform’.”