The future of financial regulation

There was an excellent roundtable discussion a few weeks back on The Economist blogs about how to modify financial regulation going forward.
They had an incredible variety of guest writers, from the deregulation fanatic, to the former regulator and a variety of other economists. It will be interesting to see if any of these suggestions are taken up by Congress this year.

http://www.economist.com/blogs/freeexchange/2009/04/rajan_roundtable_a_response_fr.cfm

There wasn't a lot of coherent agreement (naturally), but I came away with two general thoughts:

1. There will always be a regulator. In times of crisis, most people want a credible public authority with sufficient power to prevent total meltdown. Unfortunately, at the time of greatest systemic risk, the regulator will face the greatest political pressure to not intervene. Therefore the regulator needs political independence.
2.Rather than fight this someone-in-charge impulse, it would be better to have an agency with sufficient resources to credibly quantify the risks of new financial instruments. By actively sharing this information with the public, the agency could help investors make informed decisions and reduce the risk of industry capture.

Going forward, regulation of the ratings agencies will also need to changed. Shutting down tax havens etc. has been a nice sideshow for the G20 et al to unite on, but the real work is clearly remaining.

Economic meltdown of '08

It was truly fascinating watching the crisis unfold last October and tracking the debate in near real-time on the econo-blogs. Nothing like a crisis to focus a sense of purpose amongst large groups.

However, now that the immediate terror has subsided a bit, we have a fairly deep division (even amongst economists) about what to do to fix the problem. Everyone is worried that we will repeat Japan's experience, the ominous Lost Decade of growth. The only problem is that there is widespread disagreement on which symptoms matter and which are cause versus effect.

This post does a great jobs of summarizing the current positions and their recommendations:
http://www.economist.com/blogs/freeexchange/2009/02/how_did_japan_get_lost.cfm

First official comment call-out!

Perhaps it's not too hard to tell, but I spend a fair bit of time reading The Economist online and commenting on their blogs. So I was pleasantly discovered to see one of my notes pulled out in a 'most interesting comments' post. It's not my most serious work but it's always nice to be acknowledged.

Their recent business article reports that Gen Y has a voracious appetite for positive reinforcment, and as much as I hate to prove them right, I seem to be doing just that.