Sunday, October 25, 2009

Robert Lenzner Critiques Larry Summers' new Social Compact between Wall Street and Main Street

Robert Lenzner at Forbes writes that Larry Summers "has a dream of a new social compact between Main Street and Wall Street - but no details." Summers, Lenzner notes, sounds serious:
In a sober warning, Summers noted that "roughly every three years for the last generation, a financial system that was intended to manage, distribute and control risk has, in fact, been the source of risk--with devastating consequences for workers, consumers and taxpayers."
Forbes describes Summers' social compact in a separate article. Lenzner continues:
So, what's Summers' prescription to deal with the crises to come? He is borrowing former Sen. Daniel Patrick Moynihan's solution for automobile safety proposed in the late 1950s when Moynihan was working for Averill Harriman in New York. The financial equivalent of "guardrails, shatterproof glass and speed limits," for Wall Street is Summers' clever model.
So where, Lenzner asks, are the details? There are none, he says. And in conclusion he offers this pessimistic and sweeping generalization about human nature:
Summers' idea to create a "social compact" between the financial community and the rest of the nation is pie in the sky. It has never existed and never will, I'd venture, because you can't regulate human nature.
Ugh - so is Wall Street exempt from the powerful government regulators of human nature in America that include schools, jails and police departments? Is Lenzner is granting exemption from regulation of human nature only in its intelligent free market aspect? Actually, I find myself thinking that Summers' idea of a social compact between Wall Street and Main Street may not be a idea. But if so, I suspect this social compact may be better realized voluntary communication between these two streets than government regulation of one of them.

In closing: today the New York Times editorializes on the much ballyhooed 90% pay cuts [and 50% compensation package cuts] to be imposed by pay czar Kenneth Feinberg on top executives at Citigroup, Bank of America and five other big banks that owe their survival to the U.S. taxpayer. Here's one observation:
If you read the fine print you will discover that these reductions apply only to the remaining two months of 2009.
Over and out.

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