Eliminating the Conflict of Interest Principle is Crucial

[excerpted from Bill Cara's Daily Report]

Listening to Alan Greenspan testify before a Congressional committee in Washington Thursday, saying that current events were a once in a lifetime event that caused him to realize his fundamental beliefs in the financial system, and how to manage it, were wrong, I thought to myself - well that’s a good start.

If only we could believe the man who refused to permit the regulation of off-balance sheet liabilities, credit derivatives, offshore funds, private equity and hedge funds, which pretty much caps the problems the world faces today. The man was the poster boy for conflict-of-interest interests, ambiguity in communications and lack of transparency. He alone could have made a difference.

Alan Greenspan failed the people because he followed his duty to protect special interests. He cannot say to the world that he now sees the light and his training and earlier beliefs had misled him. What trash is that!

An alcoholic will never change, like the people holding authority to manage financial services and capital markets will never change. The need is to change the structure so that people can continue to act just like people, just with a different behavior.

With an alcoholic you remove access to the booze. With financial services, which are credit based, you remove the power to control asset markets. The conflict of interest principle must be eliminated wherever money and credit are involved.

To accomplish what is needed, I have been saying, will require a total destruction and rebuilding of the system known as banking. Bankers will fight tooth and nail against changing the status quo and will endeavor to continue to exercise their control over the lawmakers who are the only people among us who hold the power to introduce change.

This whole notion of change is at the core of the US presidential and congressional election to be decided in about ten days. Who among the candidates for President, Senate and House are capable of delivering on a mandate for change that the people so desperately need? Will there in fact be sufficient numbers among the successful candidates who will do their duty to liberate the people from the present system?

It’s hard not to be a skeptic because we all know that money talks. As a friend says, money starts wars and money ends wars. Bankers, not government and not the people, are the ones who print the money. Of course, government and the people over-spend, which requires money, and that is also at the core of the problem.

The bottom line then is that money – its creation and spending – must be brought under control, and the way to do that is to build a new financial structure that does not permit conflict of interest.

Comments

[moonbat1775:]

Yes, this time let honesty and flexibility be the pillars of the banking system, not fraud, theft by inflation, a monopoly currency, and government insurance.

2008 Oct 24 09:42 AM

[Jackson Cash:]

TRANSPARENCY is among the few traits that are absolutely imperative. Arbitrage will always exist, along with those elitists that capitalize on it...

Transparency is the only thing that facilitates honesty.

2008 Oct 24 10:23 AM

[yada yada:]

i always find value in your posts, bill.

i don't know what the answer is to eliminating the conflicts of interest that you are writing about. but i do know from experience that "removing access to the booze" has no lasting useful effect with alcoholics.

i think that after the crash in the 30's, there was a lot of legislation passed that was intended to remove similar types of conflict of interest that were in force at that time. in the endless cyclicality of time and culture (read "the fourth turning" by strauss and howe), we culturally "forgot" the lessons of that period and repeated a similar scenario. likely we will again pass legislation, and then 80 - 100 years hence -- if the culture survives the current period -- we will revisit something like this scenario again.

2008 Oct 24 10:23 AM

[Smarty_Pants:]

Luckily for the banks the FED will print as much money as it takes for them to be able to buy influence in Washington DC.

2008 Oct 24 11:39 AM

[rm:]

[To accomplish what is needed, I have been saying, will require a total destruction and rebuilding of the system known as banking. Bankers will fight tooth and nail against changing the status quo]

To accomplish what is needed, we need to remove all those who presided over this mess. Everyone who's been working on "fixing" this mess had a hand in creating and profiting from it.

[Who among the candidates for President, Senate and House are capable of delivering on a mandate for change that the people so desperately need? ]

Uh... none of them?

Problem is, during the primaries, the general public was completely unaware of the scope of the problem that was knocking at the door.

It's amazing to me that these candidates waste their breath on issues like free health care for everyone and pork barrel spending, when the fundamental issue is the economy.

The only guy who ran for President who had a *clue* about what was going on was Ron Paul... but I heard some awfully goofy things fly out of his mouth, as well.

2008 Oct 25 08:17 AM

[aristide z:]

Just significantly reduce leverage and in the retail sector increase margin requirements.I believe it would surprise most people at the effect it would have.

2008 Oct 25 03:32 PM

[stanj:]

Great post Bill.

However, until we have significant more pain I doubt that anything will change.

2008 Oct 25 09:27 PM