Ideas for Wall Street Regualtion Reform

Headlines of tainted food, product recalls and dangerous pharmaceuticals seem common place but given the number of new products that consumers are exposed to every year the United States really has a pretty solid reputation for product safety and consumer protection.

As our government considers new regulations for the banking and investment industries maybe we should look to our existing tangible product safety rules and regulations for workable models.  For example, before new exotic financial products can be sold on the open market, it seems reasonable that bankers and investment houses should have to conduct exhaustive “clinical trials” with their new products and schemes in hypothetical market models, with the results subject to regulatory oversight, before these products could be sold to investors. Financial product liability laws should be written to ensure that  the financial inventors & purveyors of these instruments should also be subject to product liabilty laws if their products should prove faulty (or fraudulent) as with the bundling of mortgage backed securities at the center of this economic mess. It seems reasonable that faulty mortgages should be subject to recall & repair at a bank’s expense when systemic errors are found without having to resort to foreclosures and bankrupcies. All tangible product manufacturers have to stand behind the quality of their products, why not require the same accountability of banks and investment firms?

The US economy has been going through the transition to a “knowledge based economy” for so long the term has become cliche.  Financial services became larger than manufacturing as a portion of the US Gross Domestic Product in the 1980’s. As we better understand the fault lines at the origin of the current recession, we should consider whether our consumer protection laws and product safety regimes for financial instruments could use some of the same rigor and enforcement that have ensured quality and safety in our tangible product industries for the past several decades.

Perhaps some of the billions of dollars of lost value from investment and retirement accounts and hundreds of thousands of lost jobs could have been saved if we, as a nation, had been concerned about the quality, not just the quantity, of what our financial services industry produced. We are learning, once again, that the effects of greed can be just as dangerous and devastating as the effects of faulty design and manufacturing of tangible goods.