There was a slight but noticeably casual quality to Arthur Levitt, Jr. as he approached the lectern at the front of the KJ Auditorium – a quality that was accentuated by the considerable pomp and circumstance surrounding him. Levitt was introduced by President Joan Stewart and greeted with waves of anticipatory applause from a mostly formally dressed audience, leaving no doubt that he was the subject of much professional esteem. But upon leaning toward the microphone to open his lecture on regulation in the financial markets, he began his address without notes and with a casual intimacy that immediately engaged the audience.
“We would discuss my mother’s pension at dinner,” he said, recalling several incidents from his childhood. That’s when it became clear that, behind his many titles and achievements – senior advisor to The Carlyle Group, former Securities and Exchange Commission (SEC) chairman, former chairman of the American Stock Exchange and bestselling author – there was a personal passion that motivated Levitt.
“The importance of public support, of public confidence, is so fundamental,” he began. That of the many constituents who play a role in the financial markets, “one constituent trumps them all: the investor constituent,” Levitt continued. He explained that “so much in this country is motivated by its political swing,” emphasizing that too frequently investor initiatives are thwarted by acts of Congress. “It’s a story that has been told over and over again,” he said. There has always been a gap between the regulators and the regulated, who are “always two steps ahead.” This gap has, time and again, proven troublesome.
When asked, “So who’s to blame for the current economy? The brokerage community? The SEC?,” Levitt replied, “The greatest blame lies with Congress.” He pointed out that this particular branch of government, which is supposed to supervise every regulatory agency, too often becomes a “cheerleader” for the economic community. “There has been a greater power shift from the executive branch to the legislative branch than ever before,” Levitt Jr. continued. Treasury Secretary Henry Paulson recently laid out a blueprint for regulatory reform, which was left to committees of Congress to implement. That was supposed to happen four months ago. “Health reform is so critically important to the Obama administration that regulatory reform will suffer.”
Additionally, the Federal Reserve Board, which should be a regulator of the banks, has instead become their “custodian of safety and soundness.” This conflict obviously prevents them from being the stern supervisory body that they very well need to be. What’s more is that the Senate Banking Committee is reluctant to give the Federal Reserve Board any more power, since that would be rerouting power away from Congress.
“System regulation is part of the problem.” An answer could be found in resolution authority. This authority proposes a greater overview of financial networks, through which problematic institutions would be observed and promptly dealt with. The government has been supporting and bailing out institutions like AIG and Citigroup; a resolution authority, Levitt, Jr. argued, would not prop up failing institutions but rather dispose of them, demonstrating to creditors that they “are not immune.”
So what will happen next in the financial markets and the economic situation generally? For one thing, there’s going to be less regulation than there should be. And we’re going to see more bank failures.
After a round of applause, the floor was open to questions. One person asked whether the abolishment of the Glass-Steagal Act, a set of laws that had separated investments banks and commercial banks, was a mistake. “Banks should get back to the business of banking,” Levitt, Jr. replied. He mentioned that he was fearful about the resourcefulness of commercial banks that engage in the risky activities, which should be the concern of investment banks.
Another question: “Are there too many bankers on Wall Street?” At this Levitt, Jr. laughed. “Wall Street attracts people who want to make money,” he remarked. He admitted that it was very telling that a significant portion of the senior class wants to work with hedge funds upon graduating. “The youth of America goes where the money goes.” But he recommended that graduates take a year off. They could work at the Metropolitan Opera or the Boston Library System and pursue a Wall Street career later, he said. “I wish more of them did.”
Finally, toward the close, someone asked a pointed question: how did Levitt’s involvement with Goldman-Sachs – and, by extension, the economic world at large – affect his faithfulness to his ethics? “My life has been filled with conflicts,” he said somberly. “I try as hard as I can to stay with the things I believe.” But he has been criticized for this reason. After leaving his post as SEC chairman in 2001, he weighed his options: he could either assume a more private lifestyle or continue his high-profile career and further subject himself to public opinion. Obviously, he decided to choose the latter, to play an active role in something he deemed vitally important. With a good-natured smirk, he remarked: “You’re criticized either way.”
“We would discuss my mother’s pension at dinner,” he said, recalling several incidents from his childhood. That’s when it became clear that, behind his many titles and achievements – senior advisor to The Carlyle Group, former Securities and Exchange Commission (SEC) chairman, former chairman of the American Stock Exchange and bestselling author – there was a personal passion that motivated Levitt.
“The importance of public support, of public confidence, is so fundamental,” he began. That of the many constituents who play a role in the financial markets, “one constituent trumps them all: the investor constituent,” Levitt continued. He explained that “so much in this country is motivated by its political swing,” emphasizing that too frequently investor initiatives are thwarted by acts of Congress. “It’s a story that has been told over and over again,” he said. There has always been a gap between the regulators and the regulated, who are “always two steps ahead.” This gap has, time and again, proven troublesome.
When asked, “So who’s to blame for the current economy? The brokerage community? The SEC?,” Levitt replied, “The greatest blame lies with Congress.” He pointed out that this particular branch of government, which is supposed to supervise every regulatory agency, too often becomes a “cheerleader” for the economic community. “There has been a greater power shift from the executive branch to the legislative branch than ever before,” Levitt Jr. continued. Treasury Secretary Henry Paulson recently laid out a blueprint for regulatory reform, which was left to committees of Congress to implement. That was supposed to happen four months ago. “Health reform is so critically important to the Obama administration that regulatory reform will suffer.”
Additionally, the Federal Reserve Board, which should be a regulator of the banks, has instead become their “custodian of safety and soundness.” This conflict obviously prevents them from being the stern supervisory body that they very well need to be. What’s more is that the Senate Banking Committee is reluctant to give the Federal Reserve Board any more power, since that would be rerouting power away from Congress.
“System regulation is part of the problem.” An answer could be found in resolution authority. This authority proposes a greater overview of financial networks, through which problematic institutions would be observed and promptly dealt with. The government has been supporting and bailing out institutions like AIG and Citigroup; a resolution authority, Levitt, Jr. argued, would not prop up failing institutions but rather dispose of them, demonstrating to creditors that they “are not immune.”
So what will happen next in the financial markets and the economic situation generally? For one thing, there’s going to be less regulation than there should be. And we’re going to see more bank failures.
After a round of applause, the floor was open to questions. One person asked whether the abolishment of the Glass-Steagal Act, a set of laws that had separated investments banks and commercial banks, was a mistake. “Banks should get back to the business of banking,” Levitt, Jr. replied. He mentioned that he was fearful about the resourcefulness of commercial banks that engage in the risky activities, which should be the concern of investment banks.
Another question: “Are there too many bankers on Wall Street?” At this Levitt, Jr. laughed. “Wall Street attracts people who want to make money,” he remarked. He admitted that it was very telling that a significant portion of the senior class wants to work with hedge funds upon graduating. “The youth of America goes where the money goes.” But he recommended that graduates take a year off. They could work at the Metropolitan Opera or the Boston Library System and pursue a Wall Street career later, he said. “I wish more of them did.”
Finally, toward the close, someone asked a pointed question: how did Levitt’s involvement with Goldman-Sachs – and, by extension, the economic world at large – affect his faithfulness to his ethics? “My life has been filled with conflicts,” he said somberly. “I try as hard as I can to stay with the things I believe.” But he has been criticized for this reason. After leaving his post as SEC chairman in 2001, he weighed his options: he could either assume a more private lifestyle or continue his high-profile career and further subject himself to public opinion. Obviously, he decided to choose the latter, to play an active role in something he deemed vitally important. With a good-natured smirk, he remarked: “You’re criticized either way.”
