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More on the unintended consequences of government regulation

by Andrew White  |  June 1, 2015  |  2 Comments

After my book review of By The People, by Charles Murray, you just have to read the article in this week’s US print edition of the Economist titled, Rating Agencies: Undue Credit.  Talk about bananas and how high minded well-to-dos messing it up for everyone.

The rating agencies played a role in the engrossing financial crisis that triggered the economic malaise we are now stuck in. They were not the initial trigger- that goes to the U.S. Government for lowering standards by which mortgages could be obtained by those that could not afford them.  But the rating agencies could have helped prevent the explosive growth in how risky mortgages were split up into various products that ‘spread’ the risk more evenly.  During this time the rating agencies were not able to understand where risk accrued and they failed in their duty.  So the result is increased regulation.

The article suggests that the new regulation has now the rating agencies stronger!  Moody’s, the only stand-alone agency, paid its leader Mr McDaniel $14m last year.  He was at the helm during the financial crisis.  Yes, $14m.  Don’t even ask.

The point is not the salary (though that is high enough it warrants its own blog) but the fact that regulation is being used to improve the performance of the very firms it was meant to ‘control’.  Regulation has increased the barrier to entry for the industry so competitors, flush with ideas on how to avoid the mistakes of the larger establishments, cannot enter the market. Thus big companies are protected.  Who wanted this behavior?  Seriously this whole thing is just a mess.  It beggars belief.  Murray is spot on in his book.  And it’s too depressing for words.

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Category: dodd-frank  financial-crisis  financial-regulation  

Andrew White
Research VP
8 years at Gartner
22 years IT industry

Andrew White is a Distinguished Analyst and VP. His roles include Chief of Research and Content Lead for Data and Analytics. His main research focus is data and analytics strategy, platforms, and governance. Read Full Bio

Thoughts on More on the unintended consequences of government regulation

  1. […] Andrew White After my book review of By The People, by Charles Murray, you just have to read the article in this […]

  2. Dave says:

    Hence it explains why anyone who proposes doing away with such corporate welfare are excoriated with Alinsky-like polarizing tactics. It’s a sick, vicious cycle that lines the pockets of a few when burdening the rest.

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