What Can You Do With Five Cows? Morality Tale for Financial Reform?
When I am not traveling for business, I drive the back roads from my house to our company office in Shelton, CT. For those who don't know, Shelton is south of New Haven and north of New York City. While true that either city is relatively close by, I live in a somewhat rural area. Our town boasts about 20,000 people with one McDonald's, a few gas stations, some sheep, lots of deer and five cows. I know this because I pass by a corner house on what is, for local denizens, a main road.
Ordinarily, I just scoot by, anticipating my morning expresso. However, since warm weather began, I've noticed that a handful of friendly bovines are out and about each morning, chewing, mooing and looking generally happy. Since this house is not a farm, I've been pondering of late why someone would own five cows. Do they make for good pets? Can you sell milk on the side and, if so, is the money worth the fuss? What the heck do you do with a few furry friends who are bigger than a breadbox and seldom house trained?
One of these days, I ought to stop my car and politely ask the man or woman of the house why they collect cows. Until then, I've concluded that this may be the small town version of the theater of the absurd.
That brings me to the topic of financial reform. Oh boy, where does one start? Those who pushed for strong reform are disappointed. Critics think the impending bill goes too far. According to writer Alain Sherter in "Funny Business: Why the Financial Reform Bill Has Become a Joke" (BNET.com, June 30, 2010), taxpayers are left holding the bag in more ways than one. Let us count the ways:
- Regulatory consensus is needed to address systemic risk
- Behemoth financial institutions are free from arduous capital reserve requirements
- Credit rating agencies will be studied but not immediately reformed.
Worse yet, "its passage would create a false sense of security, a hollow complacency" while it "entrenches Wall Street's control over the financial system."
Only time will tell if this sweeping "reform," destined to become the nation's law, will thwart future meltdowns. I'd much prefer to see capital market participants taking steps towards a robust risk management culture (if not in place already) and then providing transparency to interested parties about their risk mitigation (not the same as minimization) policies and procedures.
Animals and supposed strict mandates may seem warm and inviting but might end up costing a lot, generating few benefits and urging rational thinkers to ask why.
P.S. A future post will address the issue of derivatives and financial reform.
