Mark McDonald

The princes of Wall Street are donning hair shirts.  Wearing their repentance beneath their tailored suites and silk ties, its also time for the media to feast on endless analysis of what happened and how far we have come.  As we all gather around the virtual tombstone of Lehman Brothers its important to recognize that while we are taking stock of the toll we should also recognize what has not changed.

Its four o’clock in the morning, I have a 6:00 am flight to the east coast and already the BBC and talk radio are running stories about what have we learned and the new penitent life on the street.  It is telling that one regulator has said that we will never know the full extent of Lehman’s holdings and estimates the cost at between $1 and $3 trillion dollars – roughly the GDP of Mexico or France!

The question is not only what we have learned but also where we go from here.  On the surface what we have learned so far seems not like much.  The Wall Street Journal has done a personal rehabilitation piece last week on Dick Fuld.  Goldman Sachs is prepared to release record bonuses and the Wall Street Journal is back to analyzing the street in terms of raw competitive earnings (see link to prior blog post).

Perhaps the most telling thing is that a year after Lehman, the issue of regulatory reform of the system that has helped put more than 5 million people in the US out of a job is nowhere to be seen.

So what?

Well as we observe the one year anniversary of the collapse of Wall Street its important that we keep in mind that the type of regulatory reform and how we move forward must be different than what we have done in the past.

Prior regulation regimes have been reactive, all about preventing the past crisis from recurring again.  That type of legislative action made some sense when things moved slowly and capital flows move sluggishly across countries and regions.  That slower rate of innovation and competition gave people time to regulate a market and that time created a major part of the oversight gap that led to the crisis.

Regulation of the Wall Street and Main Street for that matter has to change from being reactive to being proactive.  That will be tough as markets will need continuous innovation in order to survive, but do so in an environment of transparency and managed risk.

Information and technology will play a major role in any future regulatory regime.  If the future of regulation is to be more proactive, then the issue is how do we do accomplish this goal – certainly not by rehashing past regulatory practices, but by creating new ones.

So today is an unhappy anniversary, one that is a cause for reflection rather than cathartic reporting, one that asks more questions than unfortunately the ones it has answered.

Welcome your comments and ideas.

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Category: Economy Personal Observation     Tags: 2010, Economic conditions, New economy, regulation

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