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CCCA_V5No2_Q&A_ARSorkin-FIN.qxd:CCCA_V1No1_DriversSeat-FIN.qxd Feature You mean competition among the regulators? 5/6/11 12:25 AM Page 38 gotten to the point of Lehman Brothers — hopefully you ARS: Yes. I think there’s always been an argument in the U.S. wouldn’t have, but if you had — you would have had res- that we almost want a mini free market within govern- olution authority. ment.You want these different regulatory bodies that have different responsibilities, some even overlapping in some Which would give the U.S.Treasury broad powers to respects, to keep everybody on point. wind up insolvent companies that pose systemic risk. ARS: Right,and you would have been able,at least,to buy your- Alan Greenspan penned an article in The Financial Times self some time, and really avoid that cataclysm that hap- recently in which he argued that Dodd-Frank will have pened that weekend. So, for all those reasons, I would say unintended harmful consequences because regulators lack yes, Dodd-Frank would have helped, but not forever. insight into the massive financial system. Any reactions? [JPMorgan CEO and chairman] Jamie Dimon had a ARS: His comments were very unpopular in the U.S. He was famous line when he went to Congress and he told the criticized and attacked story about how his daughter as if the op-ed was a had called him up and said, financial crisis]. But “ [Wall Street] and he said,“It’s something that justification for the mis- “Daddy,what’s a financial crisis?” takes that he made forgot literally the [leading up to the happens every seven years.” I there was an underlying moment [the crisis] think there’s truth to that.Things go up and they go down, they truth to his op-ed. was over. always do, and so it’s really just a We’re all human, we’re ” matter of modulating the ups all fallible, we all make and the downs. mistakes and we’re all likely to make mistakes again. His underlying message is that you can regulate the heck out But there are serious concerns that Wall Street is quick- of the system as much as you want but, invariably, you ly taking on more risk again. Has it forgotten the lessons won’t get as far as you want to.The question is not,“Can of the crisis? you eliminate the next crisis?”The question is,“Can you ARS: That is probably the saddest part of my experience working make the next crisis less bad?”Can it suck less,right?That’s on this particular project.They forgot literally the moment what we’re after. But I think we sell the public on a very [the crisis] was over. In conversations I’ve had with people different ideal, which is that if we put all these things into on Wall Street, many of them describe themselves as sur- place, we won’t have another crisis.That’s unrealistic and vivors, in this sort of backwards way of thinking that they that’s what I think he was trying to say. somehow survived something.Whereas,they may have real- ly been arsonists who somehow also just happened to make Would Dodd-Frank have prevented some of the failures it through the fire.As for new risk, I’m actually not as wor- of the 2008 financial crisis? ried as other people are that somehow we’re bringing ARS: I think it would have, actually.There are two components remarkable risk back to the system. On a relative basis to that could have helped in terms of the magnitude of the where we were in 2007, I think we actually have, in some crisis.The first is the Consumer Protection Bureau. Had it respects, probably too little risk.And what I find so baffling been in place and worked, there would have been fewer about the argument about risk is that a year or even six “no-doc” loans and less predatory lending. By default we months ago, the public, at least in the U.S. would say,“Oh would have been in a much better place.We wouldn’t have my God! I can’t get a mortgage.I can’t get a loan.I can’t get had the housing bubble reach the stratospheric levels that a car loan.”The banks were hoarding their cash. Now they it did.The second component is the systemic risk regula- begin to lend out a little bit of it and we say,“Oh my God! tor. It is possible that if you actually had all these minds They’re being risky.” So, you know, this cuts both ways. from all the departments working together, you might have seen some of the cracks in the system early and been But it isn’t just mortgage lenders. Proponents of reform able to attack some of them early. And if you’d actually are saying that an overhaul of the derivatives market is 38 CCCA Canadian Corporate Counsel Association SUMMER 2011