To Regulate or Not: That is the Question

April 1, 2009

Take a look at remarks from Nicolas Sarkozy, President of France, as reported by the Washington Post on April 1, 2009:

"Tomorrow, for the second time in only five months, the leaders of the world's top 20 economies will meet to seek a joint response to the unprecedented global economic crisis.

Since this crisis began, I have argued that when we are faced by a challenge of this magnitude, cooperation is a necessity, not an option. In September, I called upon the world to rally together with a response based on coordination and cooperation. Brought forward in concert by the European nations, that initiative led to November's Group of 20 meeting in Washington, where we laid the foundations for far-reaching reform of the international financial system. Tomorrow's summit must enable us to put into practice the principles we established.

The world expects that we will speed up the reform of the international financial system and rebuild, together, a better-regulated form of capitalism with a greater sense of morality and solidarity. This is a precondition for mobilizing the global economy and achieving sustainable growth. This crisis is not a crisis of capitalism but the breakdown of a system that drifted away from capitalism's most fundamental values.

In November, we agreed on four principles that would guide our response: enhanced coordination and cooperation; the rejection of protectionist measures; the strengthening of regulatory systems in financial markets; and a new global governance.

This week we must attach the same sense of urgency to the regulation of financial markets. World growth will be all the stronger for being sustained by a stable, efficient financial system and by the kind of renewed confidence in the markets that would enable resources to be better allocated, encourage lending to pick up again and foster the return of private investment capital to developing countries.

We agreed in November that not one financial player, institution or product could be beyond the control of a regulatory authority. This rule must be applied to credit rating agencies, speculative investment funds and tax havens. On the latter point, I want us to go far indeed, adopting a resolution that identifies tax havens and that details the changes we expect from them and the consequences should they fail to respond. The debate on tax havens initiated by the Washington summit has begun to bear fruit, particularly in Europe.

We must reform the required disclosure standards and levels of prudential oversight for financial firms. Sadly, in many countries, this issue has not been getting the attention it deserves. As we make progress toward reforming global economic governance, we must offer much more space to emerging nations, in keeping with their real weight and the responsibilities they should take on. This holds true for all international bodies, especially international financial institutions.

I remain convinced that the world can emerge from these troubled times stronger, more united and with a greater sense of solidarity, provided we have the will to do so. We cannot achieve radical change overnight, and much remains to be done. We may need future meetings to implement the reforms undertaken in London. I am certain of two additional things: We must achieve practical results beginning with tomorrow's summit. And failure is not an option."

Sounds like a message we've heard before, doesn't it. Once again, I'm confused. To regulate or not, that is the question.

When I listen to GOP leaders espouse the position that government should allow the market to function on its own without government interference and regulation, and when I listen to pundits and news correspondents remark on the difficulty President Obama will have with his G-20 counterparts, and when I hear GOP leaders support their party's position on deregulation, well, I'm confused.

How can the world blame the United States for the world's financial crisis when our financial institutions were deregulated based on GOP influence and governance under Regan and Bush policies? How can the Obama administration encourage regulation of our financial institutions? Is President Obama and his counterpart in France wrong about their position on regulating international financial institutions?

I guess it depend on who you listen to. God forbid we analyze the historical data and conclude that the answer is to regulate, baby, regulate.