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Distressing, but probably true

June 24th, 2009 · No Comments

Those Wall Street bad guys..

Chanos: Wall St. Bad Guys A Step Ahead
By: Julie Crawshaw

Market manipulators will find a way around whatever new government regulations are passed, says famed short-seller Jim Chanos.

The reason? Financial regulation failed previously because it was formulated by government officials not in touch with the internal machinations of the marketplace.

“We still have by-and-large academics and lawyers who are trying to regulate an industry in which they’ve never run a fund, they’ve never bought and sold stocks professionally, they’ve never cold-called a client,” Chanos told CNBC.

“It’s a little tough because the guys who are the bad guys are one step ahead of the cops on the beat every single time.”

Successful financial regulations, Chanos wrote in a recent whitepaper, must be based upon activity, not actors, and scaled to size and complexity.

It should include companies that perform systemically significant functions, track activities to wherever corporations stash them, and more closely scrutinize those companies with a complex structure or that offer financial products.

In addition, Chanos says that greater scrutiny must be given to those who originate, underwrite, or securitize and invest in a particular asset — and that regulators must enforce and practice transparency.

Think Progress financial and economic blogger Matt Yglesias doubts a regulatory system that covers all the bases at one time is even possible.

“All told, I don’t think we should place enormous faith in the idea that any regulatory setup will work forever and ever,” Yglesias told The New York Times.

“Under the circumstances, (the Obama administration’s) proposals seem like a plausible improvement on the status quo and should also leave us in a much better situation to mop up a future mess if it arises.”

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However, what’s the alternative? Regulation by industry insiders, or self-regulation? We all know what happens then. If you don’t, read Eric Schlosser’s ‘Fast Food Nation,’ for a rather distressing view from another industry.

Tags: Credit Crisis · Reform Capitalism