A packed Strong Auditorium took part in a conversation with several high-ranking officials in the financial world, including the managing director of Goldman Sachs and the chairwoman of the Securities and Exchange Commission about the recent financial meltdown. The event was the fifth annual Presidential Symposium, an initiative created by UR President Joel Seligman upon his arrival in 2005.
The objectives of the current financial reform were a call to decrease the probability of a reoccurring financial crisis and to limit the damage of an inevitable future crisis.
Founder and Chairman of Breeden Capital Management Richard Breeden discussed financial regulation and the philosophy of ‘too big to fail” by addressing the implications of these bailouts.
‘One must remember that bailouts create moral hazards,” Breeden said. ‘They sow the seeds for future bailouts and future failures, increased taxpayer costs and capricious windfalls for people who don’t deserve them. They are generally a bad thing, a really bad thing, and not something we should look forward to conducting.”
He admitted that occasionally they are necessary, because the economy is reliant on the stability of the banking system, but said that the bailout line should be drawn at the banking system.
‘I would argue that no non-bank or non-bank holding company is too big to fail,” he said.
Richard Thaler, the Ralph and Dorothy Keller distinguished service professor of economics and behavioral science at the University of Chicago, agreed and stressed the importance of transparency.
‘Here’s a rule of thumb I would offer: too big to fail means too big to hide,” Thaler said. ‘There has to be a cost for being too big to fail because these companies are getting a free insurance policy from the government, and one of the taxes they should have to pay is to reveal more about themselves,” he added.
The speakers themselves were chosen by Seligman, who rounded up an impressive list.
‘I sought the best speakers that I could identify who could address a fundamental ongoing debate about what should be our financial regulatory structure,” Seligman said. ‘Mary Schapiro as chair of the Securities and Exchange Commission is a key participant in current legislative debates focusing particularly on the securities side.”
The audience appeared to be very engaged during the event and to learn a lot from a high-powered panel. ‘I’ve benefited a lot from the panel,” senior Lily Li said. ‘I got a sense that most related organizations are taking actions to improve the situation (i.e. emphasis on transparency, reform in capital markets), and it made me feel more confident in the future of financial regulation.”
The causes of the recession, which have been debated in depth by many, were also a cause of conversation at the symposium and several potential solutions were offered.
Thaler blamed the financial crisis on a failure of self-control at all levels of the financial system and supported transparency, emphasizing that companies should make better data available in machine readable form. Schapiro also advocated for increased transparency and accountability in order to reduce the risk of future crisis, and said that all hedge funds should register with the SEC.
In support of transparency, Corrigan stated that financial institutions should be able to put together comprehensive exposure information.
The information-packed session only left time for one question, posed by Seligman, who asked about our capability to put in a regulatory system that will minimize our problems.
Schapiro, in summing up the symposium, addressed Seligman’s question by saying she doesn’t know if we can succeed, but that we have to try. Breeden added that an important lesson to learn is that regulators cannot eliminate risk out of the world and that companies have to follow prudence when taking risks, but that he is optimistic.
Barbosu is a member of the class of 2010.