Despite the grand rhetoric we heard from the president yesterday about building a new foundation for fixing financial regulation, the sharp operators of Wall Street will find ways around the new rules. That was the message from Jim Chanos on CNBC.
The problem is basically that the incentives for getting around the rules is too great, and the people designing the new structure are no match for those they are regulating. The regulators just aren’t as shrewd as the guys they are charged with overseeing.
“We still have by and large academics and lawyers who are trying to regulate an industry in which they’ve never run a fund, they’ve never bought and sold stocks professionally, they’ve never cold-called a client,” the president of Kynikos Associates said. “It’s a little tough because the guys who are the bad guys are one step ahead of the cops on the beat every single time.”
Chanos said that financial regulation is overrated in general, and those seeking to prevent the next big catastrophe are bound to be disapointed. It’s never worked before, so why would it work now.
“I’m worried we’re just directing yet another Maginot Line that the forces of financial innovation will get around next time,” he said.
Here’s the video from this morning:
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