The always brilliant Michael Lewis and David Einhorn are guest op-ed contributors in today's NYTimes. Their (very long and convincing) argument is that misaligned interests throughout the financial eco-system contribute to a systemic problem: short-term gain vs. long-term interests, a complete lack of meaningful checks and balances (via credit rating agencies), and incompetence and political pandering at the SEC.
The lead in:
… the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don’t know what they are doing with money, who does?
The second part of the article is more prescriptive, offering suggestions on how to fix the mess:
- Stop making big regulatory decisions with long-term consequences based on their short-term effect on stock prices.
- End the official status of the rating agencies.
- Regulate credit-default swaps.
- Impose new capital requirements on banks.
- Close the revolving door between the S.E.C. and Wall Street… but keep the door open the other way.
Highly recommended reading:
The New York Times
The End of the Financial World as We Know It (Part 1)
We have a brief chance to cure ourselves. But first we need to ask: of what?
How to Repair a Broken Financial World (Part 2)
There are obvious changes in the financial system to be made, to prevent some version of what has happened from happening all over again.
By MICHAEL LEWIS and DAVID EINHORN
Published: January 4, 2009