Guzzo the Contrarian

Ever since the Bears Stearns intervention by the Fed earlier this year, there’s been more call for regulation of hedge funds and investment banks.

According to some of those regulation proponents, the credit crisis could have been averted if there had more oversight of the complex derivative instruments that led to the subprime fiasco. Even former Federal Reserve chairman Paul Volcker is now calling for tighter regulation. According to a recent AP article, the ex-Fed chief said:

Investment banks should be regulated more like commercial banks if they’re going to get the same kind of help from Washington. “We must figure out how to regulate the currently unregulated parts of financial markets,” he said, citing credit default swaps, “a multi-trillion dollar industry almost completely outside the purview of regulators,” as an example.

Well, I just finished reading a MarketWatch article entitled: Bank failures to surge in coming years. According to data presented in this article, it’s estimated that 150-300 U.S. banks will fail within the next 2-3 years. If these estimates ring true, then we could face another “savings and loan” crisis, a crisis which eventually led to even tighter regulations of those institutions.

Now let’s see.. banks and thrifts are currently being regulated, but yet we’re still facing another bank failure crisis. Regulation didn’t help prevent these (potential) failures. Why would anyone believe that even more regulation will help prevent future crises?

Just something to think about.