I’m sitting here trying to figure out my column for this week—it’s about financial regulation, but I haven’t gotten much further than that. And yeah, I’m still Googling pretty regularly to see what kind of chatter is going on out there about my book. Which is how I happened to come across this brand-new column by Robert Teitelman, editor-in-chief of The Deal, which starts out as a sort-of review of my book and ends up as a smart rumination on financial regulation and related matters:
It’s a striking fact that for all the talk of fundamentally remaking the system, the markets themselves have been pretty much left out of the plans. Instead, the emphasis has been on institutional behavior, individual incentives, governance, controls, regulatory restructuring — in many cases, in bringing markets back. The notion that we should rein in the markets, say by rethinking the pension system, has been a nonstarter. Corporate governance, now more than ever, turns on shareholder and on shareholder performance. And even mark-to-market accounting has been tweaked only on the margins. The penetration and ubiquity of the markets on Main Street looks to be nearly as complete after the crisis as before.
In a sense, then, despite the denunciation of deregulation and the free-market ideology, we haven’t left the market behind. It often feels as if it’s all we’ve got. Even the existence of a considerably more omnipresent federal involvement seems certain to decline as the economy improves, though not if you listen to the right wing. There’s a general consensus that market-based pricing and entrepreneurial activities produces a more “efficient” allocation of resources than bureaucratic decisions laced with politics. And, for all the talk of behavioral economics and all the discussion of the “myth” of rational markets, the financial world, from money management with its modern portfolio theory and corporations, with their capital asset pricing models, continues to function as if the market were both efficient and rational.
Teitelman’s right about this. Unlike in the 1930s, when the very idea of financial markets was in question, this time around there seems to be a consensus that financial markets are generally okay, we just need to make them work better and maybe do more to protect consumers from their excesses. It’s a consensus that I generally share in, although I do wish any regulatory reform effort could be a bit more explicit about the reality that (a) financial markets sometimes go crazy and (b) there’s an inevitable tradeoff between financial innovation and financial stability. Think I can make a column out of that?