Friday, July 6, 2012

U.S. Banks Likely Targets from LIBOR Scandal

The LIBOR scandal will reach over the Atlantic to major U.S. banks, says Charles Gasparino in the New York Post. He seems to look forward to it. Comment: Many would add, about time. Never in the field of human conflict has so much been improperly owed by so many to so few.

Bank regulation has failed, both voluntary approaches like the LIBOR oversight body, and the governmental kind. Floyd Norris in The New York Times argues that  that a separate market regulator is needed from the bank regulators, because regulators are captured by those they regulate. Comment: Alas, history shows that separate regulators are no guarantee. In fact, some libertarians have argued seriously that the more regulators there are the better if there is to be any regulation, because it creates a competition among regulators that tends to become a competition in laxity. The separate Savings & Loan regulator was captured in the 1970s when the industry's speculative excesses built up, resulting in the 1980s crises that foreshadowed our 2008-2012 bank losses and revelations. Separate bank regulators are advocates for the subset that they regulate. We had a great global regulatory system in place by FDR and Treasury Secretary Woodin and Senator Glass in 1933. It was eroded over time. (Although only the Glass part of the Glass-Steagall Act was torn down - the Steagall part remains in the form of the FDIC.) The Economist Magazine had it right when it said in 1999 that what was happening was that banks were being allowed into the securities markets, which meant that with deposit insurance federal regulation must extend to the whole market.