“In my opinion, the private credit markets have forfeited their privileged right to operate relatively autonomously because of incompetence, excessive greed, and in minor instances, fraudulent activities,” writes Bill Gross, managing director at PIMCO Investment Management, in a commentary written today.
Currently, though, it appears the movement is toward gradualism, notes Clive Crook in the Financial Times, who says “the resistance to thinking big extends even to denying the significance of steps already taken.” The Wall Street Journal reports today that Mr. Paulson’s proposals would largely consolidate certain regulations under the umbrella of the Federal Reserve, but the Fed has some limited enforcement powers — and some wonder about the effectiveness of putting the Fed in charge, as it is often blamed for the market meltdown.
Peter Cohan of Blogging Stocks wonders if Mr. Paulson’s solution – which was in the works prior to this crisis — reflects narrow ideological views. “Paulson’s proposal is a thinly veiled attempt to use the current credit crisis to slash regulation on financial institutions without addressing its real cause,” he writes.
Yves Smith of Naked Capitalism is harsher in his assessment, calling the effort “a plan for some consolidation of financial services industry regulatory oversight.” He says this isn’t useless, but says that “to pretend that bureaucratic consolidation is tantamount to reform is dishonest.”
However, the Wall Street Journal notes in its article that the “regulatory system left important pockets largely unwatched, such as mortgage brokers who aren’t part of regular banks.” Within this environment, Douglas McIntyre of 24/7 Wall Street applauds Mr. Paulson’s efforts, noting that “his solutions to the mortgage crisis may not work, but they have a sound underpinning in logic.”
Specific proposals include appointing a “market stability regulator.” Some refer to this as a formalization of the so-called Plunge Protection Team (which some already say is a role of the President’s Working Group on Financial Markets). Mr. Smith says this is potentially dangerous, as a similar effort in Japan rewarded the entrenced market players.