Thursday, August 16, 2012

Paul Singer urges Romney shift on bank regulation

Showing that requiring banks to provide ultra transparency has bipartisan support, hedge fund manager Paul Singer has urged Republican presidential nominee Mitt Romney to pursue it.

According to a Financial Times article,

Paul Singer, the billionaire hedge fund manager who is one of the Republican party’s most influential donors, is pressing Mitt Romney, presidential candidate, to make the case for tougher bank regulation that would go beyond the Dodd-Frank law
Mr Singer, the chairman of Elliott Associates, recently sent copies of his quarterly investor letter to Romney officials, laying out the need for tighter regulation. The letter, which he distributes to investors and policy makers across the political spectrum, says Dodd-Frank is “ill-conceived” and could cause a financial “black hole”. 
In place of Dodd-Frank Mr Singer wants ... a regulatory framework that forces big banks to be more transparent about liabilities and off-balance sheet instruments.  
“Conservatives who believe in free markets should also believe in sound fair markets,” Mr Singer told the FT. 
“Private reward and public risk is not what conservatives should want.”
While the idea of transparency was initially enshrined in our financial system by the FDR Administration, Mr. Singer shows that it has support across the political spectrum.

Of course, the banks and the rest of the Financial-Academic-Regulatory Complex (FARC) will fight against Mr. Singer and his call for transparency as it would eliminate the profits banks make from opacity and reduce the power and influence of the regulators.

As noted in the FT article,

“It is the big highly leveraged financial institutions which are opaque and were instrumental in the financial collapse,” Mr Singer told the FT. 
“They will likely lobby against the fixes that I believe are necessary. But the fixes are essential. If they do not occur, the next financial crisis could be similar to the last one, but perhaps more sudden and intense.” 
Please re-read the highlighted text as it nicely summarizes what your humble blogger has been saying since the beginning of the financial crisis.
The Romney campaign said in a statement that the current regulatory system was “poorly equipped to deal with dynamic and evolving markets”. 
It said Mr Romney would “implement a sensible, streamlined regulatory framework that doesn’t overly burden small banks or hurt small businesses. This regulation will include enhanced capital requirements and greater transparency for our financial institutions”.
One of the great strengths of requiring banks to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details is that it reduces the need for regulation.

For example, as I have talked about before, ultra transparency enforces the Volcker Rule without the need for hundreds of pages of regulations.

Given what the Republican party says about a desire for smaller government and supporting sound, fair, free markets, ultra transparency would seem like a natural for Republicans to support.

However, it is a testament to how the financial institutions contribute to politicians that not a single Republican has come out publicly in favor of ultra transparency.  Instead, they continue to protect the opacity on Wall Street that Mr. Singer says lead to the financial crisis.

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