Treasury Secretary Tim Geithner’s op-ed has a lot of tongues wagging this morning. Steve Crawford, former co-president of Morgan Stanley and founder at Centerview Partners, says this opinion piece is objectionable not only for the “whining of the industry” line, but that it is a political piece that misses the point.
“First, the Fed had ample opportunity to regulate the banks and indeed had ample opportunity to restrict risk in the regulated bank sector,” explained Crawford.
“There are plenty examples of Fed officials downplaying the evident risks in the marketplace pre-crisis. In addition, there isn't a single Wall Street firm that would have ignored the Fed had they chosen to weigh in on their finances even before they had express powers to do so."
Crawford argued that Dodd-Frank does little to control the shadow banking system, which he believes is a huge source of risk for the markets.
“In fact, the shadow banking system is likely to grow substantially as a result of the regulation! Finally, the regulation and legislative efforts have missed the main source of instability for our financial system. The source of instability has been an accumulation of leverage that people can deal with. Look at what happened in the '20s, '30s and it happened again,” warned Crawford.
“Geithner has his blinders on,” Crawford said. “I know he believes in what he is doing but I find it that he missed the main point on what we should have learned. Leverage.”
Crawford explained when leverage starts to squeeze the overall economy, the government is forced to step in irrespective of where the risk resides, “This is why we have done little if anything to address 'too big too fail'!”
Fear of the regulations pushing trading into the unregulated sector is something that is not far from Crawford’s mind.
“It will be less transparent. It’s the things that you are unprepared for that potentially could be much more calamitous,” he said.
When asked about how he feels his comments will be viewed, Crawford says he is expecting push-back.
”The industry has done itself no favors. People might think I’m speaking to making life easier for other executives but I’m not. In fact, I would do things that would put more pressure on the profitability of our industry than what is being done,” Crawford said.
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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."
