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More About This Title When Free Markets Fail: Saving the Market When ItCan't Save Itself
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The reform of this country's financial regulation will be one of the most significant legislative programs in a generation. When Free Markets Fail: Saving the Market When It Can’t Save Itself outlines everything you need to know to stay abreast of these changes.
Written by Scott McCleskey, a Managing Editor at Complinet, the leading provider of risk and compliance solutions for the global financial services industryLooks at the intended result of these regulations so that institutions and individuals will have a greater understanding of the new regulatory environmentOffers a realistic look at how these regulations will affect anyone who has a bank account, a car loan, a mortgage or a credit cardCovers the reforms that have been enacted and looks forward to future reformsBoth theoretical and practical in approach, When Free Markets Fail provides a strong overview of coming regulation laws with insightful analysis into various aspects not easily understood.
English
English
Acknowledgments xi
About the Author xiii
Preface: In Defense of Regulation (and of Free Markets) xv
In the Beginning, There Was Adam xvi
The Shift from Philosophy to Math xvii
Can Markets Regulate Themselves? xix
Regulation versus Justice xx
Conclusion xx
Introduction: Why Regulatory Reform Matters to You xxiii
The Structure of the Book xxv
Chapter 1: Meltdown in the Markets: Systemic Risk 1
How Systemic Risk Works 2
The Case for Government Intervention 9
Why Hasn’t the System Collapsed Before? 10
Conclusion 12
Chapter 2: Can an Institution Be Too Big to Fail? 15
Policy Options 17
Conclusion 22
Chapter 3: Moral Hazard 24
The Theory 25
The Reality 26
Punish the Leaders, Not the Organization 27
The Other Moral Hazard 28
Conclusion 30
Chapter 4: Toxic Assets 31
What Are Toxic Assets, and Why Are They Toxic? 32
Building Low-Risk Assets Out of High-Risk Ones 33
Credit Rating Agencies and Structured Finance Products 35
Credit Default Swaps 37
Conclusion 40
Chapter 5: Should Regulation Stifle Innovation? 41
Policy Implications 44
Conclusion 45
Chapter 6: Rewarding Success, Rewarding Failure: Incentives and Compensation 46
Big Brother is Paying You 47
Regulating the Level of Pay 47
Performance Goals and Risk 49
Methods of Aligning Reward with Risk 50
Who Matters? 53
The 2009 Federal Reserve Guidance 53
Was Adam Smith Right? 56
Chapter 7: Who Protects the Consumer? 57
Were Existing Regulations Effective? 59
Is a Separate Consumer Regulator the Right Answer? 61
What Powers Would the Agency Have? 65
A Word about Consumer Protection and Systemic Risk 67
Conclusion 68
Chapter 8: Transparency: Letting the Sun Shine In, or Sipping Water from a Firehose? 69
Transparency as Regulation 69
Degrees of Transparency 71
What to Consider When Transparency Is the Proposed Remedy 73
Chapter 9: Rebuilding the Regulatory Structure 75
Why So Many Regulatory Agencies? 76
The SEC and the Investment Banks 77
The Federal Reserve 78
Other Proposed Changes 79
Consumer Protection 80
Do We Need a Systemic Regulator? 80
To Concentrate or Not to Concentrate 81
Chapter 10: Rating the Raters: The Role of Credit Rating Agencies 83
NRSRO Status 84
How Ratings Are Made 89
What Really Keeps the Rating Agencies Up at Night (And It Is Not Your Mortgage) 92
The End of the NRSRO? 94
Conflicts in the Rating Agency Business Model 97
Are Rating Agencies Utilities? 97
Conclusion 98
Chapter 11: The Politics of Regulation 100
The Political Process 101
Chapter 12: Nice Law, Now Go Do It: Regulators and Compliance Officers 106
The SEC 107
Examinations and Inspections 108
Conduct of Examinations 110
FINRA 112
Compliance Departments 113
Conclusion 119
Chapter 13: Cost-Benefit Analysis 121
Basics of Cost-Benefit Analysis 122
The Benefits of Cost-Benefit Analysis 128
Government Use of Cost-Benefit Analysis 129
Cost-Benefit Analysis as a Negotiating Tactic 130
Conclusion 132
Chapter 14: It’s a Small World, After All 133
Sunday Is the New Monday 133
Overseas Regulators 135
International Organizations 139
Conclusion 141
Chapter 15: Where Do We Go from Here? Conclusions, Observations, and Recommendations 142
Modern Markets Are Too Complex to Regulate Themselves 143
Planning for the Next Crisis 144
The Need for a Professionalized Regulatory Service 146
Creating a Federal Regulatory Service 148
Elevating the Compliance Profession 151
Decisions Are Made by Individuals, Not Organizations 152
Keep the Rating Agencies—But on a Short Leash 153
Put Down the Pitchforks 154
Conclusion 154
Chapter 16: Judging for Yourself 156
Conclusion 161
Appendix 1: Summaries of Regulatory Concepts and Issues 163
Moral Hazard, Too Big to Fail, Systemic Risk 163
Unlevel Playing Fields 165
Unintended Consequences 166
Self-Regulation 168
Regulatory Capture 169
Information Asymmetries 172
Conflicts of Interest 173
One Size Fits All 174
Appendix 2: Excerpt from Obama Administration’s Reform Proposal, ‘‘Financial Regulatory Reform: A New Foundation’’ 177
Index 187
