This is the last of the letters we pounded out to zip off to the Wall Street Journal. Well, maybe we only sent half of them, but that's at least 50% less disappointment we've suffered, plus the chagrin of seeing obviously less recondite albeit turgid missives given such play on the editorial page. In any event,
In "Money-Market Mayhem" (06/27/11, A16) you accurately point out that external controls in the form of government regulations enforced by "regulatory wise men" have proven inadequate to the task of eliminating unnecessary systemic risk. Unfortunately, you identify the underlying problems as, one, government legislation that assumes regulators are omniscient, and, two, that regulators are not fixing obvious problems.
On the contrary, the most basic problem is that the repeal of Glass-Steagall and similar legislation led directly to the combination of incompatible functions within the financial services industry. The most fundamental precept of good internal — systemic — control, separation of function, was violated in the name of increased efficiency and enhanced competitiveness.
Regulators, however skillful or well-intentioned, are thus faced with the nearly impossible task of proving that something otherwise legal ought not to be done or should not have been done, rather than establishing a violation of a specific rule. What is needed is not more external government regulation, as intrusive as it is ineffectual, but effective internal, that is, systemic controls of the financial services industry.
Yadda, Yadda, Yadda