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April 1, 2008
Rearranging the boxes
Treasury Secretary Hank Paulson has set himself upon a Herculean task. He wants to replace the hodgepodge of financial regulators that has grown up over the past century with a Prudential Financial Regulatory Agency (“PFRA”) and a Conduct of Business Regulatory Agency (“CBRA”) (see Blueprint for a Modernized Financial Regulatory Structure).
I have no specific comment on the details of the proposal – I’m sure there are nuances upon nuances layered over reams of technical details. I would like to raise more of a mega-question, however, concerning the premise of the proposal. It is the same question I raised about the creation of the Department of Homeland Security as the key element in our anti-terrorism efforts.
In an age of increased emphasis on collaboration, flattened organizations and multi-organization cooperation, is creating a new bureaucratic structure the right answer? As we find the importance of interconnections and multiple points of view, does it make sense to create a Department of Everything Department?
Again, there may well be great merit in the Secretary’s proposal – I’m not in the position to judge the details of whether certain regulatory functions are best handled by the Federal Reserve or by some new agency. I am simply asking a different question. Are there other forms of organizational reform that would give us a better outcome than the standard industrial-era solution of an overarching consolidated bureaucracy?
Maybe it is time to look for “out-of-the box” solutions (to use that old cliché). After all, Hercules accomplished one of his tasks (cleaning the Aegean stables) with an innovative response.
Let me suggest, therefore, that everyone pay more attention to one of the key short-term recommendation (rather than the "Long-Term Optimal Regulatory Structure" recommendation). That short term recommendation is strengthening the President’s Working Group on Financial Markets (PWG). The PWG may be exactly the type of information age regulatory structure needed for the I-Cubed Economy. The proposal calls for expanding the role of the PWG and adding certain other agencies to the group.
Since PWG was set up by Executive Order, these changes can be made by Executive Order. I would urge the Administration to move ahead with this as soon as possible. This could be the starting point for a more innovative regulatory structure.
Posted by Ken Jarboe at April 1, 2008 8:49 AM
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