Financial Crisis: The Committee on Capital Markets Regulation Has the Solution, NOT!
By - May 28, 2009

Earlier this week, a group of America's most intelligent and influential thinkers published a report heralded as the definitive solution to the financial crisis. The Committee on Capital Markets Regulation's study is getting on for 300 pages, so let me give you the gist: we must overhaul financial regulation, create a centralized market for the financial instruments behind so much of the trauma, find a more sensible way of dealing with collapsed investment banks and collect more information on hedge funds. All this is worthy, correct and important – and completely misses the point. Like most of the analyses produced in the wake of the crisis, this report entirely fails to get to its heart. Yes, we have had a horrible crunch, which is sapping any energy from the economy. Yes, there is plenty wrong with the way the banking system works. But trying to save the world economy with new regulations and codes of practice is like trying to cure a cancer patient with plastic surgery. The financial disaster was the ultimate manifestation of a far deeper problem – a wholesale malfunction of the global economic system. The bankers and mortgage brokers may have been in the front line, but they were pushed there by forces far more powerful than any regulations. For decades, we in the Anglophone West borrowed too much, while the other half of the world saved too much. It was the tectonic collision of these imbalances which caused the crisis, which brought about the worst recession since the 1930s, and which could trigger another bust decades in the future. – UK Telegraph

Dominant Social Theme: Many concerns, one solution.

Free-Market Analysis: We overlooked this one last week. But the UK Telegraph has done us the favor of commenting on it. The Telegraph's take is that this grave report misses the point – the real problem is us. We're to blame. Our profligacy, our greed. We don't buy that for a minute. The real problem is central banking and its money monopoly. But since we write about this subject on a regular basis in our quixotic crusade to counteract propaganda provided by the bankers themselves, we will avoid repetition just this once.

What we are much more interested in commenting on today is the report itself, from yet another important financial group called the Committee on Capital Markets Regulation. Our question is this: Who sets up these groups and finances these reports? There are so many of them, literally stumbling over each other, and yet they always seem to come to the same conclusion: More laws are needed, more regulation, more centralization, more control.

Being journalist types, we investigated. We started with Wikipedia. Now Wikipedia is anything but an authoritative source. However, the blurbs that find their way into Wikipedia are often written by the subjects themselves, or their PR outfits. Thus, what you read in Wikipedia is what the subjects themselves want you to know. Here's something on the Committee on Capital Markets Regulation.

The Committee on Capital Markets Regulation is an independent and nonpartisan 501(c)(3) research organization dedicated to improving the regulation of U.S. capital markets. Twenty-seven leaders from the investor community, business, finance, law, accounting and academia comprise the Committee's membership. The Committee co-Chairs are Glenn Hubbard (economics), Dean of Columbia Business School, and John L. Thornton (pictured above left with George W. Bush), Chairman of the Brookings Institution. The Committee's Director is Professor Hal S. Scott, Nomura Professor and Director of the Program on International Financial Systems at Harvard Law School. The Committee's research regarding the regulation of U.S. capital markets provides policymakers with a nonpartisan, empirical foundation for public policy.

OK, sounds good. Of course, we have our suspicions about the Brookings Institution, a Keynesian-style think-tank that never met an economic problem that couldn't be alleviated by additional regulation, preferably of the international kind. Thus, in the spirit of a fuller investigation, we looked in Wikipedia for the background of John L. Thornton. Here's what Wikipedia told us:

John L. Thornton is Professor and Director of Global Leadership at Tsinghua University in Beijing. He is a former President and Co-COO of Goldman Sachs. In 1983, Thornton founded and developed Goldman Sachs' European mergers and acquisitions business. He served as co-CEO of Goldman Sachs International in London from 1995 to 1996. Thornton was Chairman of Goldman Sachs Asia from 1996 to 1998, where he expanded the firm's regional franchise during the Asian financial crisis. Thornton is a director of Intel, Pacific Century Group, Ford Motor Company, Industrial and Commercial Bank of China, China Netcom, and News Corporation. He is also Chairman of the Board of The Brookings Institution. Thornton earned his high school Diploma from the Hotchkiss School, a boarding school in Lakeville, Connecticut. He is currently President of the Board of Trustees of the Hotchkiss School. Thornton earned a bachelor's degree from Harvard College, bachelor's and master's degrees from Oxford University, and a master's degree from Yale School of Management. He resided in New Jersey for a number of years but purchased an $87 million house in Palm Beach where he and his family have moved. His estimated Net Worth is said to be upwards of $300 million dollars.

OK, the guy sounds pretty interesting. Since Wikipedia bios usually tell us what the subjects themselves want written, we decided to make one more quick pass and dialed up a bit more information on Mr. Thornton. Here's what we found:

INTEL EXECUTIVE BIOGRAPHY: John L. Thornton: Professor and Director of Global Leadership, Tsinghua University in Beijing. John L. Thornton has been a director of Intel since 2003 and is Chairman of the Finance Committee of the Board. Mr. Thornton retired in 2003 as president and co-chief operating officer of the Goldman Sachs Group and as a member of that firm's board of directors. He is also a director of the Ford Motor Company, News Corporation and the Pacific Century Group Inc. Mr. Thornton is chairman of the Brookings Institution Board of Trustees, a member of the Council on Foreign Relations, and a Director or Trustee of the Asia Society, China Institute, the Eisenhower Fellowships, The Hotchkiss School, Morehouse College, The Tsinghua University School of Economics and Management (Beijing) and the Yale School of Management. Mr. Thornton received a bachelor's degree in history from Harvard College in 1976, a bachelor's and master's degree in jurisprudence from Oxford University in 1978 and a master's degree in public and private management from the Yale School of Management in 1980.

This bio does not differ significantly from the Wikipedia bio with the exception of one important point. It mentions Thornton's involvement with the Council on Foreign Relations. Now, that could be serendipity, but whether it is or not, it is still worth mentioning; at least we think so. We bet if we looked a little bit more closely, we'd find other individuals on the Committee on Capital Markets Regulation who are also members of CFR.

We have nothing against CFR, or no more than many others. But we would like to know why the conclusions of those connected to think tanks like the CFR and the Brookings Institution so often feature more and more centralized and intrusive government at the expense of the private sector. We would also like to know who is setting up these organizations and funding them, and why. We would like to know how come the same names pop up from group to group (yes, even if the talent is thin at the top). And just for fun, we'd like to know why the CFR connection was left out of Thornton's bio on Wikipedia when so much else was left in.

Before the Internet it was harder to spot connections between organizations and individuals, and thus it was harder to know who was sponsoring what group. Today, via the Internet it is absurdly easy. Unfortunately, once one has begun this exercise, the same individuals and companies crop up with weary certainty.

Yes, for some reason, a great many top corporate execs and heads of financial firms inevitably seem to favor the conclusions that this latest group has reached. They seem overwhelmingly to favor intrusive federal government regulation and see the future as lumping these governments together into one increasingly big, (busybody) global government. Given the discussions at the G20 level featuring global regulation and global IMF drawing rights, it's not too much of a stretch to say that globalism seems the rage these days. – at least when it comes to the monetary and corporate elite.

But we are not elite (just ask our wives)! And we don't agree that making governments bigger and more centralized is the answer to everything, or even anything. We certainly don't agree that we (and you) are responsible for the current economic crisis, as the article excerpted above actually argues. Moreover, we think it is not a good thing for Western democracy to be hit over the head week after week and month after month by the same regurgitated talking points, reconfigured and rebranded with different titles on different web sites, but still nonetheless stating much the same ideas. We get it already.

After Thoughts

We wonder how these groups and individuals come up with their conclusions. Anyone who studies the great sweep of Western civilization will see that the greatest epochs of human endeavor were the free-est and most creative – starting with Greek and Roman republics, then the Renaissance and certainly societies in the New World before and even after the American revolution. To centralize, regulate, tax and prosecute is a prescription for creating empires not civil societies, which do best when "human action" is allowed to flourish on an individual basis.

The mania to elaborate on hyper-regulated nation-states with increased protections for central banking monopolies can only lead to more inflation, more innovation stifling regulation, more currency collapses, high interest rates and generalized monetary and fiscal chaos. Say, we bet there's a ratio between the reports published by groups such as the Committee on Capital Markets Regulation and the price of gold and silver – one which goes up in a ratio with the total poundage of the printed reports. Maybe we'll look into that next.

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