"The events of the past few weeks leave U.S. policy makers at a crossroads in a long-running debate about how to police financial markets. ... 'What we have here is obviously very dynamic markets that have the ability to run circles around regulators and they have an incentive to exploit every possible opening there is for regulatory arbitrage,' says Raghuram Rajan, a University of Chicago economist who sounded alarms about he excesses building up in the financial system back in 2005. One of the most important, and least talked about, needs for overhaul, is making sure that bankers have the right incentives: for example, in their own compensation, to ensure they don't push their institutions to extremes", my emphasis, Jon Hilsenrath at the WSJ, 21 July 2008.
"Angelo Mozilo was in one of his Napoleonic moods. It was October 2003, and the CEO of Countrywide Financial was berating me for the [WSJ's] editorials raising doubts about the accounting of Fannie Mae. I had just been introduced to him by Franklin Raines, then the CEO of Fannie, whom I had run into by chance at a reception hosted by the Business Council, the CEO group that had invited me to moderate a couple of panels. Mr. Mozilo loudly declared that I didn't know what I was talking about, that I didn't understand accounting. ... Any editor worth his expense account makes enemies, and complaints from CEOs, politicians, and World Bank presidents are common. ... Raines reacted with immediate fury, denouncing us in a letter to the editor as "glib, disingenuous, contorted and irresponsible,' and that was the subtle part. He turned up on CNBC to say , in essence, that we had made it all up because, we didn't want poor people to own houses, while Freddie issued its own denunciation. The companies also mobilized their Wall Street allies, who benefitted both from promoting their shares and from selling their mortgage-backed securites, or MBS. The latter is a beautiful racket, thanks to the previously implicit and now explicit government guarantee that the companies are too big to fail. ... I also received several interventions from friends and even Dow Jones colleagues on behalf of the companies. But I was especially startled one day to find in my mail a personal letter from George Gould, an acquaintance about whom I'd written a favorable column when he was Treasury undersecretary for finance in 1988", Paul Gigot at the WSJ, 23 July 2008.
I agree with AM, a professor at Carnegie Mellon.
I agree with Roubini.
I agree with Rajan, see my 1 July 2008 post for a suggestion.