Next up, financial reform…
The crash of 1929 happens in 1929 [and] Glass-Steagall, which reforms Wall Street in a radical way, doesn’t happen until 1933. There aren’t even proper hearings on Capitol Hill about the crisis of ’29 until I think late ’32. And so it’s not that surprising it’s taken a while.
That from a Michael Lewis interview with Terry Gross last week. He was promoting his latest book, The Big Short: Inside the Doomsday Machine, on the 2008 financial collapse. He tells that story via an assortment of dealmakers who correctly anticipated the meltdown. In his Fresh Air interview, Lewis had this to say on ideas now being batted around for financial reform:
[I]t’s crazy that a Wall Street firm can advise customers to buy and sell stocks and bonds and at the same time be making bets with its own money on those stocks and bonds. That… it creates a natural, horrible, poisonous relationship between Wall Street and the people it advises if the Wall Street firm is making its own side bets at the same time it’s advising the customers what to do. …there needs to be a – the so-called Volker rule, named for Paul Volker because he’s advocating it, makes total sense, is to say to these firms, you can’t trade for your own accounts in things when you’re advising customers. So that’s a really simple reform but its going to be devastating to Wall Street.
Another simple reform, I mean, it’s so obvious that you can’t believe it hasn’t happened yet, just simply eliminate these bilateral private transactions that go on between these firms that leave them exposed to each other, like credit default swaps… [T]hings that are traded, credit default swaps, for example, should be traded through exchanges and on screens so everybody can see them.
Now that kind of transparency, again, is an anathema to Wall Street because they make a lot of money off the opacity. They make a lot of money out of people not seeing what the right price of things should be. So – but they’re fighting that tooth and nail.
And the third thing that’s very obvious, so obvious you can’t believe that it hasnt happened is, why on earth are the ratings agencies, Moody’s and Standard & Poor, paid by the people whose bonds they are rating? It’s inevitably going to lead to problems because they’re incentivized to please the people who pay them.
The NYTimes review. Reuters’ Felix Salmon review. Lewis is a New Orleans native; the nola.com review. Then there’s the tale of kindle fanboy rage against the book — Kindle users gave it one star “BEFORE THE BOOK was even released” because it’s not immediately available on the Kindle — that apparently resulted in an Amazon apology to Lewis. (The idea that Amazon require a purchase prior to any reviews sounds good to me.)