Maybe things are going to actually get interesting ...

In the past few days, there have been a few good articles in the press: Paul Volckers's Op Ed piece in the NY Times on Sunday, Jan 31, and David Ignatius in the Washington Post on the same day. Couple the thoughts expressed in these pieces (a need for structural change in the capital markets; a need for more regulation, respectively) with some of the other statements that have been made publicly over the past week or so (Sarkozy's comments at the opening ceremony in Davos, Geithner's testimony in front of the Financial Crisis Inquiry Commission, Mervyn King's repeated calls for beating bankers with a stick,  etc.) and it's starting to look like those who who thought that a potential regulatory storm had been avoided may need to rethink their views. There seems to be an increasing groundswell of opinion amongst world leaders and regulators that in spite of the improvements in the financial world since September 2008, that indeed, the capital markets are not self-correcting, and that government must do something about preventing another (inevitable) crisis.

It's the bankers' fault, of course. The major financial institutions have failed to make any changes on their own (you get the feeling that they are trying to wait out the storm), and the news that the major investment banks were handing out enormous bonuses didn't help either. If anything, the outrage over bonuses has fueled the revived discussion about structural change and increased regulation. Here's a quote from Trichet, head of the ECB, in an interview last week with the WSJ:

I have been myself involved personally in numerous financial crises since the beginning of the 1980s: in particular the sovereign debt crisis in Latin America, in Africa, in the Middle East and in the Soviet Union. As Paris Club president at some point in the time in the 80’s I had to deal with around 55 countries that were in bankruptcy. The perception in the West was that it was not dramatic because the industrialized countries were not directly touched, but, as you can see entire continents were very heavily financially hampered. In the 1990s we had the burst of the Mexican, the Asian, the Russian crisis, – again in the emerging countries – and in the industrialized world the LTCM crisis and the tech bubble explosion. Then after this succession of very demanding episodes we have the present financial crisis, which started at the heart of the financial markets of the West. This was the first real test for two new entities, which are the integrated global financial system and the integrated global economy. Those entities are in particular the product of the conversion to market economies of all economies in the world and of the remarkable advances of technology, in particular Information Technology (IT), but not only IT. The least we can say that this first real stress test of global finance has demonstrated a fragility that is absolutely unacceptable. We have to correct it.

This is a central banker -- one of the two most powerful on the planet -- talking!  It's really amazing that the financial industry has been so completely tone deaf on this thing.  Jamie Dimon has come across as one of the smartest guys in the industry, but his testimony in front of the US commission investigating the causes of the Credit Crisis (now being re-named the Great Recession -- but that's another post ;) had way too much of a "Let them eat cake" ring.  "Markets crap out -- get over it.  It's normal." -- paraphrasing a bit here, of course, but you get the idea.  I can think of a few others -- the head of Goldman talking about doing "God's work", the head of Morgan Stanley being honest -- "We can't help ourselves".  The list goes on.  Are all of these people living in a bubble?  (Ok, obviously, yes).  Really makes you wonder if it's possible to reconcile some world views and belief systems.  At least without the force of law, or a baseball bat.

It does seem like things are about to get interesting...