Wall Street Reform: Regulators and Lawmakers Prepare for Turf War

Last Updated Jun 12, 2009 3:19 PM EDT

A former SEC Commissioner recently said to me "Never let a good crisis go to waste." That post-crisis sentiment has been echoed by the Obama Administration, lawmakers and regulators alike.

You might think a near financial melt-down would have at least one benefit: a chance to re-boot the regulatory process and start anew. While almost everyone agrees that we need to create a more streamlined and nimble regulatory process, there's little consensus on how to get there. It's kind of like heaven...everyone thinks it's a great place, but no one wants to be the first to go.

To understand the complexity of regulatory reform, check out this Financial Times chart from this morning's edition:

You might think that a dozen or so regulators might be enough to do the job, but evidently not. The "Balkanized" approach to regulation seems ludicrous, but then again, the British have a single watchdog in the Financial Services Authority (FSA) and that didn't stop the mess.

It's about to get even more complicated. Next week, it is expected that Treasury Secretary Geithner will announce that he wants a "Council of Regulators" which will watch over the the newly-anointed systemic risk overseer--the Federal Reserve.

As you review that chart again, think not only about the heads of these agencies fighting for power, relevancy and redemption, remember that each agency has a corresponding lawmaker that oversees it. Rather than work together to improve the system, regulatory reform could become a classic political turf war. The problem is that once someone has the ball, he's reluctant to give it up.

It's just not that easy to fix this mess. We need regulation that fosters free markets, not free-for-all markets. One that monitors systemic risk; ensures the safety and soundness of individual institutions; and oversees business conduct so that investors are protected. Now can someone pass the ball instead of hogging it?

Image by Flickr User plasticrevolver, cc 2.0

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    Jill Schlesinger, CFP®, is the Emmy-nominated, Business Analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and Chief Investment Officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.