We Need New Rules Now
By James J. Cramer
02/28/2002 10:39
--------------------------------------------------------------------------------
Regulation happens for a reason. Take the regulation we had that separated banking from investment banking, the Glass-Steagall Act.
When I was at Goldman Sachs, we thought it was outmoded. Who really cared whether J.P. Morgan Chase BAC could do banking while Morgan Stanley Dean Witter MWD could only do underwriting? Bogus distinction, right?
Or take the acts that regulated public utilities. Hopeless vestige of the 1930s, when those important companies did pyramid schemes and added all sorts of debt and businesses that led their entities to come crashing down, right? So we decided to make those companies pristine, even if it made them more boring and less attractive to Wall Street.
Or the acts that regulated electricity so that companies couldn't take power from one place and put it elsewhere, causing artificial squeezes in price: This was another fuddy-duddy old series of laws, right?
Greed
It turned out that our elders understood something we didn't: human behavior. They knew that if you let the market go unfettered, some unethical business people would, in the name of pure unfettered capitalism, take advantage of the public, and the public should not be taken advantage of.
That's why we are, after all of the hand-wringing involving Enron , not solving anything. That's because we are not talking about regulation as a positive. We are simply thinking that if we punish people, others will act less sinister. It's a nice thought, but what if we fail to punish offenders? If Skilling & Co. get away with these outrages, then what happens?
Let's understand what got us here. Enron used all of its political muscle to get rid of the regulations that keep people from doing unethical things. Enron took the teeth out of the regulations that it couldn't destroy by co-opting the system. We need those regs back in place. We need them because without them Enron happens again and again and again.
Bankbusting
In fact, if you really want to eliminate the bias of Wall Street, if you want the research to be unbiased and you don't want the industry to stuff bad deals down people's throats, you have to break up the investment banks again.
You have to remove the research function entirely from these firms because research can never pay for itself and will always be beholden either to institutional sales (big clients) or investment banking (even bigger clients).
We all know this. Why are we so shocked that we need a draconian solution? Things are so corrupt out there you would think that someone would recognize that we have deregulated too far, that we have created a fairly rapacious system that can really hurt lots of people without any thought or any wrongdoing occurring.
I doubt these kinds of big changes, the re-regulation of the securities and energy markets, will ever occur, particularly because despite all of the testimony we have received, the reaction from Congress has been pretty minor.
No one is talking about re-regulation. No one is talking about getting tough except Paul O'Neill, the Treasury Secretary, which I think is hysterical because he has no clout at all with this administration. I think he has seen the chicanery first-hand. He was on the board of Lucent LU and is widely rumored to be the reason why Rich McGinn was forced out, not that anything ever happened to him for it. O'Neill knows that without real change, Enrons are slated to keep happening.
Arrogance Unpunished
Understand, though, the fact that a Jeffrey Skilling can come before Congress with a straight face and say that nothing was done wrong is a testament not to his arrogance, but to how deregulated we have at last become, to where basically businesspeople can do whatever they want to the rest of us and not worry about the consequences.
I will go on pushing for hard time for these miscreants in Enron, hoping that future businesspeople will care more about their reputations than their profits. I will keep pushing because I want people to know that there will be a price to be paid if you screw the public.
But this deep into Enron, I don't see any big changes that matter. We have an SEC chairman who is debating what's right, but he came from the people who favor deregulation. We have a President who is all in favor of deregulation, and we have a group of senators and representaives who don't even know the history of this great country and why we passed all of those laws in the 1930s to begin with.
If I had my druthers, I would sentence all of the people on Capital Hill to read about the rapacious nature of capitalism in the 1920s and '30s and what it did to our country if not checked by the regulators. And I would get on the case to try to reinstate the laws that prevented our society from becoming a Dickensian nightmare run by Marley and Scrooge, where Marley looks like a good guy by comparison. |
