President Obama, legislators and numerous industry insiders are calling for increased regulation to prevent another financial meltdown. The Washington Post recently wrote that Barney Frank (D-Mass.) is preparing legislation that would make The Federal Reserve the uber-regulator of risk. Others have urged that the CFTC and SEC merge efforts to stay on top of financial hanky-panky. But these proposals don’t address a problem that has plagued the regulatory agencies for decades: Where are they going to find an army of individuals to inspect the books of highly complex companies? Will the American taxpayer be willing to pay competitive salaries and bonuses to people who could earn a great deal more performing similar jobs on Wall Street? (As it now stands, even in this market, the NY Federal Reserve Bank has posted dozen of jobs openings, many related to implementing or supervising bailout programs.)
Universities have faced this problem ever since the financial engineering boom took off in the 1980s. The institutions of higher learning watched helplessly as Wall Street picked off computer scientists, mathematicians, and physicists who could apply their know-how to the business of making money.
The talent shortage means streamlining regulators is a good idea. But that’s not the only reason. The Madoff scandal reveals how little the regulators share information with one another; they are too much like fiefdoms. In defending her tenure at FINRA, newly-named SEC chair Mary Schapiro noted that complaints regarding Madoff had never reached her desk — only the desks at the SEC, her new kingdom.
Our security agencies learned that information inefficiencies can lead to tragedy. One of the great achievements of the much maligned Bush years may be the creation of an information sharing system among the nation’s intelligence agencies. The Obama Administration is pushing for greater transparency in the financial system to help avert future meltdowns. He needs to start bringing some sunshine to the agencies down the street from the White House. And then this administration needs to exploit the unusual good will it has commanded to attract the right kind of people who will have the technical know-how and the worldly experience to understand what needs to be done.