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Finance, Politics

I’m Really, Really, Financially Anxious

Do you know the difference between angst and anxiety?

Here’s a quote from our Definitons page:

An airplane crashes into the side of a remote snow-covered mountain; those passengers that worry about their lives without hopes of survival only face anxiety. In contrast, those passengers who worry about their lives with hopes of survival but do not know when the rescue party will arrive face angst.

Now let me change the wording a bit:

A Financial System crashes under the weight of a collapsed housing market supported by securitized mortgages financed with huge amounts of leverage; those investors that worry about their finances without hopes of improved financial regulation only face anxiety. In contrast, those investors who worry about their finances with hopes of improved financial regulation but do not know when the Politicians will respond face angst.

On the anniversary of Lehman Brothers collapse, I’m feeling anxiety.

Forget The Angst, It's Time For Some Real Anxiety

Forget The Angst, It's Time For Some Real Anxiety

Having just finished reading a pile of articles in financial publications I’m not really surprised to find that the consensus of observers is that regulatory reforms are currently stalled. Everyone makes it seem pretty complicated, but I actually think the reasons are quite simple:

  1. Regulators don’t understand the new “financial products”. Derivatives are mathematical constructs literally created by rocket scientists. The people who sell them don’t understand them, how are the regulators going to figure them out?
  2. The Players don’t want regulation, and they are paying their lobbyists big bucks to slow down the politicians. Follow the money.
  3. Regulators become sympathetic to their ‘clients’. They tend to take on the same world view, and it’s not unusual for people to move back and forth between the regulated and the regulator. This phenomenon even has a name! It’s called “regulatory capture”.
  4. The US has one of the most fragmented financial regulatory systems in the world. Infighting between agencies is also slowing down any move to reform because nobody wants to give up their turf.
  5. The public and most politicians don’t understand, nor do they want to take the time to understand, these complex financial markets.
  6. As we’ve avoided Depression 2.0 the public’s pressure on politicians to force changes on the regulatory system fades.

As Jeffry A. Frieden, professor of government at Harvard, recently said:

Policymakers and regulators must be generally immune to political pressure from the financial services industries. Reformers have to have a broad and deep understanding of the great complexity of modern finance. Central policymakers need to be willing and able to override the opposition of existing, turf-protecting, state and federal regulators. And enough people have to care, and to be paying attention, to get politicians to focus on the topic and push it to a conclusion.

What are the chances?

That’s why I’m feeling anxiety.

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