I was recently quoted in a Forbes.com article as stating that the problem with Wall Street's regulation is that
We have misfits, clowns, incompetents and cronies in control of our regulatory power. We all feel disenfranchised.
The response to that comment has been overwhelmingly positive and supportive, and I clearly seem to have touched a nerve. Nonetheless, I would like to clarify a point.
I have tremendous respect for many leading industry regulators. SEC Chair Cox's life story is inspiring. He has an MBA and a JD from Harvard, he is a cancer survivor, and he reportedly suffers intense daily pain from a back injury. By most reports he is a personable individual who served his Congressional district admirably and assumed the helm of the SEC at a time of great national need. Treasury Secretary Paulson is similarly admirable. Also Ivy League educated, he literally rose through the ranks at Goldman Sachs and was highly regarded by his industry peers. For my part, I think his recent conduct during this credit crisis has been stellar. The main negative voiced against him is that he lacks charisma--that he lacks the ability to persuade the American public to get on board with his "bail out" (yes, I know he eschews that description) of Wall Street. Sadly, charisma is just not something that most folks can learn. You either have it or you don't. Frankly, I think we place far too much weight on the glow of personality these days, and far too little emphasis on competency.
As a suffering New York Mets fan, I know that there is only so much a manager can do. If your pitchers can't throw strikeouts, you lose. If your pitchers walk in the winning run, you lose. If your batters can't execute a bunt to move the winning run into scoring position, you lose. If your batters strike out while swinging at balls, you lose. A bench of overpaid, under-performers can pose an insurmountable challenge for the finest manager.
Our regulatory system strikes me as just such a bench. We have too many veterans past their prime who are just going through the motions and collecting an undeserved, fat paycheck. We have too many kids thrust into starting positions before they are ready. We have far too many mediocre players who are platooned in an ad hoc effort to just win one game, any game. While the folks in charge may be highly qualified and with impeccable credentials, the supporting cast is frequently not cut from the same cloth. Those of us who have worked on Wall Street for many years know the score. The friend of a well placed friend of an influential politician or Wall Street fat cat gets hired for a critical managerial job. The lower level supervisor gets promoted because he or she belongs to the same golf club as the boss. Another manager is clownishly inept and derided by both outsiders and in-house staff, but wound up with the promotion as a result of outlasting more competent folks who move on and out--the Peter Principle. When you riddle a system with unqualified managers who are leap frogged over more deserving staff, you demoralize the truly dedicated civil servants. Once our bureaucracies cease being meritocracies, we public citizens pay a terrible price. Look around you for proof.
As our government became more bloated, the ability to hide such misfits became more difficult. Moreover, the consequences of a system riddled with cronyism and favoritism became more dire. Two planes flew into the World Trade Center and one into the Pentagon because some managers couldn't work together or get their job done. I'm sorry, but that's how I feel about that! Wall Street is crumbling around us because some politicos craved the spotlight and had designs upon higher office. Instead of demanding more air time, they should have demanded more competency and results from their staff. Similarly, those in charge of regulating our markets seem to spend far too much time on the speaking circuit that often takes them to luxurious spas or overseas seminars. While such executives are jetting all over, their agencies are cutting back on salaries and needed upgrades. No regulator should have had the time in the past two years to be away from his or her desk talking up their book, as we on the Street say. Successful regulation requires full-time regulators dedicated to full-time regulation. This isn't an avocation or part-time job.
Let us hope that by Sunday evening when the Asian markets open, that those elected to the House and Senate have the talent to do their jobs and fix this mess. Then, let us demand that we trash the regulatory system that brought us to this precipice, and let us re-stock the new regulatory system with competent folks deserving of their jobs and prepared to discharge their mandate with fairness and effectiveness. I don't know about you but I am sick and tired of "politicians" and wish that we had a few "statesmen" on the job. Alas, I fear that those folks were on the last train out. As I recently said, these are times that demand a Moses and a Lincoln. We got a Spitzer and a Bush.