SALON

Monday, Sep 24, 2007 9:29 PM UTC

A mixed message on subprime from the IMF

A report from the International Monetary Fund acknowledges that the system could be tweaked to work better. But don't go too far!

By

Topics: Globalization, How the World Works, Barney Frank, D-Mass.,

Here’s how the International Monetary Fund’s Jaime Caruana summarized the conclusions of a new IMF report that discusses recent financial market disruptions in the wake of the subprime mortgage debacle. Governments should not “rush to regulate everything,” Caruana told the Wall Street Journal.

But who exactly has been suggesting such rabble-rousing radicalism? Let’s pull a name out of the hat: Massachusetts Democrat Barney Frank, the chairman of the House Financial Services committee. If anybody’s going to play a key role in coming up with new regulations for financial markets, it’s likely to be him. Why, just a week ago, he published an opinion piece in the Boston Globe that made a nuanced case for new levels of oversight.

The odd thing is, if you read the executive summary of the IMF report, you will find a clear and nuanced acknowledgment that some changes do need to be made.

In the U.S. mortgage market, the public sector costs associated with the lack of supervisory oversight of some mortgage originators will need to be balanced against the improved access to credit that some households received. Generally, the relationship between checks and balances throughout the supply chain of structured products may require some rethinking…

Policymakers now face a delicate balancing act. They must establish frameworks that encourage investors to maintain high credit standards and strengthen risk management systems in good times as well as bad. Actions should only be undertaken if the public policy benefits outweigh the costs, taking care to thoroughly examine possible unintended consequences.

And what was it that Barney Frank said, again?

Well-functioning financial markets depend on transparency and confidence that institutions are playing by clearly defined rules. Both were in short supply in the months leading up to the August meltdown and remain so today … We lack the information that we need to ensure safety and soundness as well as the confidence that comes from the requirements mandating governance and reporting standards that apply to publicly traded companies.

Our job is to understand the changes in the financial marketplace and consider what we must do to ensure that our regulatory system is able to keep up with those changes. Innovation is as important in financial markets as it is in product markets, but it would be foolish to act as if regulatory structures, designed for a different world, do not have to be as nimble and innovative as those they regulate.

It is not surprising that the Wall Street Journal chose to lead off with a quote about not rushing to “regulate everything,” even if no one is actually suggesting that we do so. That fits nicely into the “Democrats only want to regulate,” “Republicans only want the free market” pattern of what passes for policy debate in the U.S. What would have been more provocative, however, is some exploration of where the kind of new oversight imagined by Frank intersects with the kind of “rethinking” the IMF recommends. But that would require moving beyond a framework that posits regulated vs. unregulated as an all-or-nothing ideological battle. What about all of those people who just want the system that works best for the greater good?

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.

Next Article

Related Stories

More Related Stories

Featured Slide Shows

The week in 10 pics

close X
  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11
  • Lisa Montgomery embraces her nephew Thursday after a tornado tore apart her home in Cleburne, Texas. The twister killed six people and destroyed entire swaths of the North Texas town.
    Credit: AP/LM Otero

  • Jack McMahon, the defense attorney for abortion doctor Kermit Gosnell, speaks outside the Criminal Justice Center in Philadelphia Tuesday. His client was convicted of killing three babies in his clinic, and will serve multiple life sentences.
    Credit: AP/Matt Rourke

  • A photo taken Monday captures Vice President Joe Biden's response to a Milwaukee second-grader's innovative proposal to end America's epidemic of gun violence. This guy!
    Credit: AP/Jenny Aicher

  • Sen. Rand Paul, R-Ky., flanked by a grouper-eyed Michele Bachmann, addresses the IRS' admission that it targeted Tea Party groups in advance of the 2012 election. In an op-ed for CNN Thursday, the Kentucky senator slammed the president for his faux outrage.
    Credit: AP/Molly Riley

  • Ousted IRS chief Steven Miller is sworn in on Capitol Hill Friday. Miller testified before the House Ways and Means Committee on the extra scrutiny the agency gave conservative groups applying for tax-exempt status.
    Credit: AP/J. Scott Applewhite

  • Attorney General Eric Holder pauses as he testifies on Capitol Hill before the House Judiciary Committee Wednesday. Holder is under fire, among other things, for the Justice Department's gathering of phone records at the Associated Press.
    Credit: AP/Carolyn Kaster

  • O.J. Simpson sits during an evidentiary hearing at Clark County District Court in Las Vegas, Nev., Thursday. Simpson, who is currently serving a nine-to-33-year sentence in state prison for armed robbery and kidnapping, is using a writ of habeas corpus to seek a new trial.
    Credit: AP/Las Vegas Review-Journal/Jeff Scheid

  • Major Tom to ground control: On Sunday astronaut Chris Hadfield recorded the first music video from space, a cover of David Bowie's "Space Oddity."
    Credit: AP/NASA/Chris Hadfield

  • When it rains it pours. President Barack Obama speaks during a news conference Thursday with Turkish Prime Minister Recep Tayyip Erdogan, inexplicably inspiring an #umbrellagate Twitter meme.
    Credit: AP/Jacquelyn Martin

  • A smoke plume rises high above a road block at the intersection of County A and Ross Road east of Solon Springs, Wis., Tuesday. No injuries were reported, but the the wildfire caused evacuations across northwestern Wisconsin.
    Credit: AP/The Duluth News-Tribune/Clint Austin

  • Recent Slide Shows

  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11

Related Videos

Comments

 7 Comments

Comment Preview

Your name will appear as username

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>

follow salon

Most Read

Popular on Reddit

links from salon.com

vote
Oklahoma senator: Tornado aid “totally different” from Sandy aid
3058 points3059 points | 2257 comments
vote
Anyone Regret Slashing National Weather Service Budget Now?: With GOP-backed cuts to forecasting agency, experts warn future storms will go undetected and more lives lost
1003 points1004 points | 529 comments
vote
Oklahoma senator wants to offset tornado aid with other cuts
152 points153 points | 57 comments
vote
Horrifying new trend: Posting rapes to Facebook " In Chicago this weekend, prosecutors announced three teenaged boys will tried as adults for aggravated criminal sexual assault after allegedly raping a 12-year-old girl — and posting a video of the attack on Facebook."
29 points30 points | 15 comments
vote
New campaign compares gun control to anti-LGBT discrimination
26 points27 points | 11 comments

From Around the Web

Presented by Scribol
listener_new_rect The Listener: So long, Sookie Stackhouse

Recommendations