Tomorrow is the North Carolina literary festival. In the spirit of that festival, or perhaps because the weekend is approaching, or perhaps because someone needs to say it...I propose a literary reference to our current regulatory regime in the financial markets.
As you may or may not know, many feel that our financial regulatory system was asleep at the wheel during the last decade. Subprime mortgage lending grew rampantly, and even though there was plenty of data to demonstrate that it would lead to problems, very
little was done. Smart investors reacted (Henry Paulson). It was a tulip bulb all over again, and when things came crashing down last fall, most everyone was hurt.
At HUD, charged with enforcing the Fair Housing Act, failed to make one enforcement action in 8 years. The General Accounting Office (GAO) recently issued a report that concluded that regulators had failed to use their authority to watch the financial markets. They observed that regulators only made 8 Fair Lending convictions in the last eight year.
Literature Speaks on the subject
It reminds me of Bartleby the Scrivener. Bartleby's one famous contribution to literature is "I would prefer not to." Here is a larger explication of the story:
Bartleby continues to refuse to perform his duties, although strictly speaking, he, in each case, simply responds that he would "prefer not to." This pattern continues to the point that finally he is doing no work at all. Even then, the narrator cannot get him to leave. The reluctant scrivener has a strange power over his employer, and the narrator feels that he cannot do anything to harm this forlorn man. The sense of urgency is increased as the narrator's business associates begin to wonder at Bartleby's presence at the office, noticing that he does no work.
You might be surprised to learn the long title of this story - Bartleby the Scrivener: A Story of Wall Street.
Such a system has been put into place not just by federal preference, but even by law. After last year's Wachovia v. Watters ruling in the Supreme Court, national banks are allowed to skip over state laws in favor of regulation by a national regulator. That means that some states with advanced banking laws (North Carolina) cannot effectively control much of the lending within their borders. Granted, there are many state-regulated banks and they are not covered by Watters.
This creates a system where federal regulators assert their right to "pre-empt" state regulators, and then to assert that they prefer not to intervene.
As Bartleby would say, "I prefer not to."