James Saft

Shocker – Davosians vote against more regulation

Jan 28, 2009 12:49 UTC

Duncan Niederauer, chief exec of NYSE Euronext, told a panel here at Davos that rather than inventing a whole host of new regulations, we’d be better off focusing on existing means of bringing order to markets, specifically taking a page from the exchanges books by having central clearing and more price transparancy for derivatives and off-exchange structured products. I think he’s actually got a great point about clearing and better price information, but I can’t see this as being anywhere near bringing regulation up to scratch.

The response from others on the panel was similar.

Nourial Roubini of NYU – “The ideology of the last decade was self-regulation which means no regulation. Reliance on ratings agencies with massive conflicts of interest.

“If we don’t want a backlash against trade we have to have prudential regulation of the financial system.”

Obama economic advisor Laura Tyson -

“We need regulation, we’ve tried self regulation and it doesn’t work. Psychology tells us that in a highly competitive game the insensitivity to risk grows. It’s like a drug addiction problem. They got so much pleasure that they simply stopped paying attention to the risk.”

At the end of the panel they held a vote on Niederauer’s idea and it won 71 percent to 29. Whether that was a vote for the sensible parts of his idea or for making that the whole of the regulatory effort I leave you to decide.

Stephen Schwarzman’s hair of the dog

Jan 28, 2009 12:33 UTC

jimsaftcolumnSo what is Blackstone Group chairman Stephen Schwarzman’s prescription for solving the banking crisis?

More leverage and less transparency, apparently.

Schwarzman told a panel at Davos that you can’t mandate higher levels of bank capital at the same time losses are mounting and that mark-to-market accounting needed to be changed.

“You need lower capital. Do something with fair value accounting which is exacerbating things . . . We have to add more leverage to the system.” He further took issue with what he described as a “fixation on transparency” and said “We have to use regulators to schedule out losses.” By that I presume he means keep the bank on life support until they can make enough to absorb their losses. It did work in the 1990s with some prominent U.S. banks, but…