The Firestorm is Starting:
Financial Reform, Industry Puschback and Political Sausage-making
By Dave Livingston. Dave is a management consultant with almost 30 years of experience with analyzing complex business problems and developing solutions and new businesses. He blogs on public affairs at his blog Parts, Systems, Structures and Outcomes ( http://llinlithgow.com/PtW/ ) where he attempts to apply that toolkit to current affairs and public policy.
The problems with the Finance Industry are fairly well known, in some form or another, because we’ve all sufferedthe consequences. As a result one of the major issues slowly working itself thru the legislative maze are major re-formulations of the regulatory framework. The proposed changes, in whatever final form they take, represent aslarge a structural change as any we’ve seen since the 1930’s and the reactions to the Great Depression.Because the Industry is systemically important, touching as it does, the lives and well being of every person,these reforms are innately, inherently important. One could even say critical. Representing as they do a majorchange in the rules by which the game is played it’s no surprise that all the major players are doing their best toinfluence the outcome. The question is in whose best interests?One can’t expect any industry to act purely for the public good but the level and nature of the pushbackrepresents an attempt to maintain business as usual. And continue the culture that’s brought us three decades ofslow growth, poor job creation, a mountain of debt and stagnant wages and benefit growth. Three decades wherewe’ve increasingly seen the results of what economic growth there has been go to those earning the highestincomes. We’d suggest that the two are not uncorrelated.The Industry’s pushback is based on the argument that the efficient and effective allocation of capital is essentialfor the health of the economy and the prosperity of society. It so happens that, in the long run, that’s true. As NeilFerguson discusses and demonstrates in his most recent book, “The Ascent of Money”. But the case againstreform is based on the notion that capital allocation is in fact efficient, effective and, in a word, sound. Ah, there’sthe rub, indeed.Below we dive deeply into the “business case” for/against reform. We also take a pretty deep look at the politicalsausage-making of reform and the current state of play and the outlook Our findings are that the case for deepand wide-ranging reform are very clear cut. The Industry has pretty well established that self-supervision is notworkable and that adult referees are required to ensure that the game is played well and according to the rules.There are bigger issues at stake here as well. Not just the most systemically Industry and it’s influence on theeconomy and society. Also at stake is the question of how effectively we can reduce the impact of narrowinterests struggling to influence legislation and regulation for their own narrow benefit. In some ways, and not tobe to dramatic, we are in fact debating the nature of Capitalism and what our collective futures will look like.Can we find, develop and implement an effective governance mechanism that works to everyone’s benefit, ornot? We even argue, and we think demonstrate, that it’s in the interests of the Industry to re-engineer theregulatory framework. Sadly though they don’t see it that way and want to continue the Bonus Culture, which hasproven dangerous and ineffective.This is one among many great debates of the time and will tell us a lot about what the future will look like.