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"Weak people in positions of leadership"

Ben? Timmy? He's talking about you! John Dizard in the Financial Times:

For all the camera-ready shouting and calm exchanges concerning the risks exposed by the financial crisis, there is one risk that gets no attention: the risk of putting weak people in positions of leadership.

I've been calling around to get a sense of the progress being made on structural reforms of the US securities markets. The answer is: very little, if any. The inside information I can whisper to you is that the inside has no information.

You mean we still don't know how big The Big Shitpile is?

The financial system has a peacetime officer corps in a wartime situation. The people in positions of responsibility are principally interested in preserving their careers and avoiding public embarrassment. There are rare and important exceptions, such as Paul Volcker, who has nothing to prove about his integrity, and who is past any need to advance his career.

To identify what has to be done to put securities markets, banking and regulation on a sound basis for the future, the people at the top might have to admit to the specifics of their own past mistakes. They would also need a command of detail of the workings of the financial system that they have avoided acquiring over the years, since it was much more advantageous to spend one's time scheming and toadying.

This is a naturally occurring aspect of human nature, but it is usually kept in check by periodic crises, which thin the herd and force the survivors to adapt. The "great moderation", also known as periodic monetary bail-outs, in developed countries for the past couple of decades has prevented that process.

Let's consider a specific issue, the reform of the leading US ratings agencies. The shortcomings of the ratings agencies have been well known for many years on Wall Street, and at least a couple of years in Washington. The direct conflict of interest created by having the issuers of securities pay the people who are rating their creditworthiness has been clear for years. The effects of that conflict, including the insolvency of "investment-grade" issuers, contributed heavily to the present crisis. There have been hearings, comment articles, speeches and denunciations, all to this effect.

So what are the federal regulators, and Congress, actually doing about ratings agency reform? ...

According to a securities industry person who has had intensive contact with the SEC lately, its staff are preoccupied with damage control. "They're not thinking about ratings reform, they're thinking about keeping their jobs. The Bernie Madoff fiasco has them in shell shock."

Sean Egan, whose Egan-Jones rating agency is one NRSRO that is paid by the investors, not the issuers, is frustrated by the slow progress in the reform process. "You have to back up to why the markets are frozen, and the answer is a lack of credibility in risk assessment," Mr Egan says.

But I thought we paid the banksters all that money exactly so they could assess risk?

Good detail on the ratings agencies -- Warren, hi! -- who did so much to inflate the bubble with false valuations. Then, this:

[T]he Fed staff are preoccupied with figuring out the details of the various "temporary" support programmes. Not many of them have operating experience in financial markets; they were employed to take the long view on monetary policy, not for the tactical execution of investment programmes. Those are very different disciplines.

Congressional leaders know that. Democratic and Republican senators share a high degree of scepticism about the ability of the Fed, effectively, to redesign and then run the financial world.

In the past, there were Wall Streeters of both parties with sufficient weight and creditability to identify problems and put together solutions. Not now. All we need to end the remaining illusions, is, I believe, one more big trauma. Auto companies?

Something to look forward to!

Looks more and more like Iraq, right? Everybody "serious" is totally fucked and totally in charge, and everybody who's right gets marginalized. Yay! Another victory for the discipline of free markets!

Those Brits sure know how to slip in the shiv. Must be the centuries of empire.

NOTE Via Yves.

UPDATE See the gruesome details how Geithner rolled out BARF:

Meanwhile, the sources said, Obama's senior economic advisers were hobbled in crafting the plan by a shortage of personnel. To date, the president has not nominated any assistant secretaries or undersecretaries at the Treasury, and the handful of mid-level staffers who have started work were still finding their offices and getting their building passes and BlackBerrys.

Well, it's not like there's any urgency to the task, or anything.

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Submitted by lambert on

Yves.

I'm starting to get into "watch what they do" mode, here. Nobody said governance was easy, but this is the sort of thing I'd expect the Obama administration to be on top of -- like since his victory became inevitable after the fall of Lehmann Brothers in September.

I mean, isn't the Chicago Way supposed to be all about getting people jobs? Is the vetting process the issue? Is the shell game continuing? What's going on?