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November 21, 2012 4:58 AM Age: 8 yrs

To Regulate or Not to Regulate?

Category: Larry Checco
Source:  Larry Checco, featured commentator

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Last week, the Washington Post reported that David Trone, managing director of JMP Securities, a full-service investment bank headquartered in San Francisco, said that his industry faces more “misery” as a result of President Obama’s reelection.

It should be noted that Mr. Trone backed failed presidential candidate Mitt Romney with the hope that Mr. Romney would loosen government regulations.

With all due respect to Mr. Trone’s plight and those of other financial institutions, there are millions of Americans who have lost their homes, jobs, health care, life savings and more who would love to have shared in the “misery” that Wall Street was forced to endure these past four years, including its increased profits and executive pay.

If “misery” equates to additional oversight and regulations, then the question Mr. Trone’s statement begs is how much misery does it take to get financial institutions to change their behavior?

Even during the aftermath of the Great Recession, we continue to learn of financial institutions being accused of deceiving their customers (ex. Capital One), dealing in money laundering (ex. HSBC) and manipulating interest rates (ex. Barclays, et. at.)

In other words, the more things change, the more they stay the same.


There is no denying that our financial institutions could use a good dose of rebranding to regain public trust.  But rebranding in this case doesn’t mean changing their messages, or logos or even their names to hide past misdeeds (think of Arthur Andersen now doing business as Accenture).

No, rebranding means our financial institutions need to significantly change the way they conduct their business.  It means they need to be more transparent, more accountable, more responsible, more trustworthy.  If that means more miserable paperwork and scrutiny, so be it.

And we, as a society—and our government, in particular—need to hold their feet to the fire when they aren’t all those things.  

But it takes more than regulations.  It takes serious and consequential enforcement of those regulations.

In July, 2010, the Securities and Exchange Commission (SEC) gloated over the fact that it had fined Goldman, Sachs & Co. a record $550 million to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.

In the meantime, Goldman’s profits exceeded $10 billion!  More than likely Goldman considered the $550 million as simply the cost of doing business.

There is no doubt that our financial institutions are an essential component of our economy.  But they lose are respect and trust when every 10 or 15 years, through their deceptive dealings and misuse of capital (think S&L crisis of the 1980s; dot-com bubble of 2000-2001; and the subprime mortgage crisis of 2008 to present), our nation goes into an economic tailspin, hurting many innocent families and businesses.

Until these guys figure it out, their behavior underscores the need for more, not less oversight and regulation.

The Good News

The good news is that now that the presidential election is over, some Wall Street kingpins are starting to get the message that it might be better to bite their tongues and cooperate, rather than fight with government when it comes to industry regulation.

JPMorgan Chase’s Jamie Dimon, an outspoken critic of government’s reining in of the banking industry through regulation, changed his tune after the election, according to the same Washington Post story that quoted Mr. Trone.

“I just think that business and government collaborating has a much better chance of igniting [the U.S. economic] engine than this antagonistic behavior,” Diamon said.

He added that he has tremendous respect for President Obama and that “fighting each other….isn’t going to get us anywhere.”

No, and if Mr. Trone’s statement is more representative of the sentiments of financial executives than Mr. Diamon’s, it seems we’re still a long way from where we need to be—and misery loves company.

 Larry Checco

© 2012

Published by: Corporate Governance & Accountability Advisors, Inc. Content & Concepts ©2008 by CG&AA, Inc. All rights reserved