Facts matter: Sign up for the free Mother Jones Daily newsletter. Support our nonprofit reporting. Subscribe to our print magazine.

Bloomberg reports that new financial regulations are on their way:

The Obama administration is preparing an overhaul of U.S. banking rules that would force financial companies to keep more cash on hand in case their trading bets go wrong.

Treasury Secretary Timothy Geithner told lawmakers yesterday that changes will include “strong oversight, including appropriate constraints on risk-taking.” Federal Reserve Chairman Ben S. Bernanke said the case of American International Group Inc. showed the “intense problem” of trading with insufficient capital to guard against losses.

This is probably good stuff, but one thing that I find persistently missing from these discussions is any sense of guiding principles. There are a million rules you might want to put in place to regulate the financial industry, and every one of them might individually sound sensible.  But what’s the big picture?  What are you trying to accomplish?

If you asked me, for example, I’d toss out three big principles.  #1 is firmer regulation over leverage, wherever and however it occurs.  This would produce regulations like the one above that increases capital adequacy ratios, but it would also lead to similar oversight of hedge funds; an overhaul of how capital and assets are calculated; regulation of effective leverage embedded in complex derivatives; rules about off-balance-sheet vehicles; and so forth.

#2 would be a stronger commitment to act countercyclically.  That would produce things like rules designed to force the Fed to keep an eye on asset inflation as well as goods inflation; a dedication to limiting credit expansion as well as credit destruction; capital adequacy rules that weren’t merely stronger, but that tightened during expansions and loosened during contractions; and stronger down payment requirements for mortgage loans.

#3, for lack of a better name, is a recognition that the global financial system could stand to have a little more sand in its gears.  Something to slow it down just a little bit.  This might include things like a small transaction tax; exchange trading for credit derivatives; and stronger transparency rules.

Now, I might be wrong about these principles, and I might be wrong about the specific regulations needed to support them.  Fine.  Suggest your own.  But rather than a huge hodgepodge of rules that might be good ideas on their own but might not really work together to accomplish what you want, I’d like to see a moderate, well-targeted set of rules aimed at fixing two or three big things.  The principles should guide what we do, not the other way around.

WE'RE TAKING A SHORT BREAK…

from the big banner at the top of our pages asking for the donations that make Mother Jones' nonprofit journalism possible. But we still have upwards of $300,000 to raise by June 30, whether we get there is going to come down to the wire, and we can't afford to come up short.

If you value the reporting you get from Mother Jones and you can right now, please join your fellow readers who pitch in from time to time to keep our democracy-advancing, justice-seeking journalism charging hard (and to help us avoid a real budget crunch as June 30 approaches and our fiscal year ends).

payment methods

WE'RE TAKING A SHORT BREAK…

from the big banner at the top of our pages asking for the donations that make Mother Jones' nonprofit journalism possible. But we still have upwards of $300,000 to raise by June 30, whether we get there is going to come down to the wire, and we can't afford to come up short.

If you value the reporting you get from Mother Jones and you can right now, please join your fellow readers who pitch in from time to time to keep our democracy-advancing, justice-seeking journalism charging hard (and to help us avoid a real budget crunch as June 30 approaches and our fiscal year ends).

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate