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The New Book on Regulation I Just Decided to Write: Blame it on Monaco

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S&L Chief Regulator Bill Black
(image by Bill Black)

Reprinted from neweconomicperspectives.org

This is the third article in a series of columns devoted to financial regulation prompted by the comments of a Swiss academic at the XIIth Annual CIFA Forum in Monaco. (See first here and second here.)

Having spent 20 years as a non-academic professional, I still find it odd the directions in which a single speaker or writer can start an academic on a convoluted path of research that spans multiple disciplines and eras and produces a series of "light bulb" analytical moments. And that prompts a digression into a symptom of the problem illuminated by that series of moments that has led me to decide to write a book on regulation.

A Digression on Brooks, Greed, Curiosity, Academics, and Regulators

In David Brooks' April 11, 2014 column, Brooks tells us that Michael Lewis' most recent book about high frequency trading (HFT) abuses is "really a morality tale."

"It's nominally a book about finance, but it's really a morality tale. The core question Lewis forces us to ask is: Why did some people do the right thing while most of their peers did not?"

Brooks claims that the reason only a few people in finance act morally is that so many of them are focused exclusively on making money that only a few of them are curious.

"The answer, I think, is that most people on Wall Street are primarily motivated to make money, but a few people are primarily motivated by an intense desire to figure stuff out."

Brooks explains why curiosity is a wonderful thing.

"Most of us have at one time or another felt ourselves in the grip of the explanatory drive. You're confronted by some puzzle, confusion or mystery. Your inability to come up with an answer gnaws at you. You're up at night, turning the problem over in your mind. Then, suddenly: clarity. The pieces click into place. There's a jolt of pure satisfaction."

The "profit motive" (which Brooks will soon call "greed") is an insuperable barrier to curiosity and "knowledge." Only a tiny group of people with the "intrinsic desire" for knowledge can triumph over their immoral peers.

"Knowledge is the deeper understanding of how things work. It's obtained only by long and inefficient study. It's gained by those who set aside the profit motive and instead possess an intrinsic desire just to know.

The heroes of Lewis's book have this intrinsic desire."

Brooks then claims that this rare passion ("love") for knowledge that motivates this literal handful of financiers also inoculates them from immorality and predisposes them to be driven to "fairness."

"If everybody is just chasing material self-interest, the invisible hand won't lead to well-functioning markets. It will just lead to arrangements in which market insiders take advantage of everybody else. Capitalism requires the full range of motivation, including the intrinsic drive for knowledge and fairness.

Second, you can't tame the desire for money with sermons. You can only counteract greed with some superior love, like the love of knowledge."

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http://neweconomicperspectives.org/

William K Black , J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House (more...)
 

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