One of the core tenets of the Financial Stability Improvement Act of 2009, which continues to advance its way through Congress, is to identify systemically dangerous financial firms (i.e., too big to fail) that would be subject to special government monitoring and regulation.
There is just one problem with this proposed legislation, but it’s a doozy — and you should be outraged. The list of systemically dangerous firms will be kept secret from American taxpayers, the very people who ponied up in the current financial crisis.
Harvard Business School professor David Moss says this single provision undermines much of the potential good work of the larger legislation. Why?
For one, all reports to Congress concerning these institutions would also be private, weakening any thought that Democratic oversight might be a good idea. The legislation could also lead to weaker and inconsistent regulation on these institutions (not that we would know!), and unfair “stabilization” payments required of less systemically important firms.
Moss continues:
“To be successful, the final legislation must require the creation of a public list of all systemically dangerous financial institutions; and it must ensure that these firms are subjected to dramatically heightened regulation to control excessive risk taking. In fact, the regulation of these firms must be so tough that they feel a strong incentive to slim down or break up in order to get off the list. Such a vital public mission will never be achieved in the shadows.”
Couldn’t agree more. How do you feel about this idea of a secret list?
