☆☆四星级☆☆Economist Debates阅读写作分析--Finacial Crisis（3）

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The moderator's rebuttal remarks

As several of those commenting on the opening statements have remarked, once it became clear that banks had become “Too Big to Fail”, more regulation was inevitable. You cannot bail out banks with taxpayer money without increasing oversight of them. The question in this debate is how “heavy” the regulatory response should be, which is where our debaters need to fight it out.
In their rebuttals, both agree on important points. Joseph Stiglitz accepts Myron Scholes’s argument that excessive debt was one of the causes of the crisis, and that additional restrictions should be placed on leverage. For his part, Professor Scholes accepts Professor Stiglitz’s argument that some of the “innovations” from modern finance were simply used to game the system.
But to work out how strong the safeguards should be, we need a fuller diagnosis of regulation’s costs and benefits. To make things harder, Professors Scholes and Stiglitz start from different points. Professor Scholes argues that during the heavily regulated era that followed the 1930s Depression “Western economies did not add value until late in the 1970s.” Mr Stiglitz starts in the 1970s and argues that markets have been more prone to failure during the period of deregulation that followed. Both these points of view may be correct, but which is more important? Barry Ritholtz, the featured participant, sums up the problem by saying that: “Over the past 30 years, the United States has moved from an environment of excessive regulation to excessive deregulation.” As Deleverage comments from the floor, “regulation and deregulation can both have unintended consequences.”
Professor Stiglitz wants to regulate against the excesses of the recent past. But that runs the risk of regulating away the benefits that have accompanied deregulation, such as the growth of global trade which has helped lift large swathes of humanity out of poverty. Professor Scholes meanwhile believes that regulation will stifle innovation. But, as Professor Stiglitz points out, he needs to provide more evidence that financial innovations have improved economic performance, rather than just benefiting a greedy few.
Federal Farmer, speaking from the floor, makes a good point: while deregulation is partly responsible for the current mess, regulation also played a part. So when Professor Stiglitz notes that there was widespread predatory lending at the bottom of the American housing market, he forgets that the American mortgage market is hugely regulated, with two state mortgage agencies, Fannie Mae and Freddie Mac, at the centre of it. Professor Scholes, meanwhile, talks of the importance of allowing innovators “to be rewarded and to fail”. But in this crisis, many banks have not been allowed to fail, because of the threat they pose to the financial system. Surely that means regulation should have stopped them becoming so risky in the first place?
Both debaters refer to pay, and seem to agree that there was some misalignment of interests involved. But when Professor Stiglitz talks about “incentive structures in financial markets [that] give rise to short-sighted, myopic strategies that involve excessive risk-taking”, he ought to take into account that employees of two investment banks that were wiped out, Bear Stearns and Lehman Brothers, owned much of the company stock. How does he account for this?
On the other hand, Professor Stiglitz is surely right in arguing that financial innovation is the means to an end: the improvement of human well-being. If it turns out to be a cost, it should be more tightly regulated. This point is borne out by Mr Ritholtz’s analysis. It provides evidence of an excess of deregulatory zeal in America in recent years that helped produce the current crisis. But does that mean we should turn the regulatory clock back? Or respond more creatively, as Professor Scholes suggests we should? We look forward to more submissions from the floor, and closing remarks from the two debaters that address some of these issues.


The proposer's rebuttal remarks
Oct 20th 2008 | Professor Myron S. Scholes  
I agree that the recent financial shock provides the opportunity to re-examine the regulatory framework.  Regulation of financial institutions in the US must be co-ordinated with those in other countries as well.  That is no small feat.  Maybe only with a shock of this magnitude will the impetus be there to effect meaningful changes. The worry, however, is that regulatory output will not produce a comprehensive plan, but instead a regulatory nightmare that will not serve the interests of savers, investors, consumers or producers.  It most probably will stifle risk taking and innovation, which will slow growth and employment for decades.  The regulatory regime of the 1930s punished the banks and bankers who had employed excessive leverage and increased their compensation through “good-time earnings”.  Although regulatory policies failed during the 30s to bring us out of the depression until the disaster of the second world war, in reality, Western economies did not add value until late in the 1970s when we ended the shackles of a regulatory policy that impeded innovation and growth.  For the next decades, we are facing that same bad consequence. We have a choice to punish and to impede or to adopt regulatory policies that continue to foster innovation.
To innovate we must take risk and to innovate we must allow innovators to be rewarded and to fail. Warren Buffet and Bill Gates are innovators, risk takers and very wealthy men.  I have proposed that as a first step we increase bank capital requirements and banks should replace the government-owned preferred stock investments with additional preferred or common stock issues in the public markets.  Even with recent infusions of government capital, bank capital has only been restored to the level prior to write-downs.  It will take a long time before banks are able to add capital to reduce leverage, even longer if the economy weakens.  Determining the amount of leverage to be used by financial institutions is a business decision. And, since crises occur frequently regardless of regulations, governments should charge banks for the right to draw contingent capital at times of shock.  This allows banks to support their activities and reduce their risks slowly as liquidity returns to the market.
There is an additional regulatory area that needs discussion and thought: “an accounting framework for the 21st century”. It can’t be solved quickly and easily but is closely linked to leverage and guarantee issues.  Over the years, global accounting systems have become a patchwork of fixes to accommodate a different world.  It is time to rethink the entire accounting system and the information it provides.  Although we strive for transparency, without a model it is difficult to define what transparency means.  Full information does not guarantee value.  If, on the other hand, a regulatory body employed a model to measure the risk of the entity, it might need different inputs from those provided by the current accounting system.  The balance sheet, for example, is just a snapshot, and does not account for dynamics or shocks.
The components of a comprehensive risk-management system include:
(1)    Allocation of sufficient capital to product lines to handle contingencies
(2)    A means to allocate capital among competing alternatives
(3)    An ability to select the level of risk through understanding the effects of adverse outcomes
(4)    A feedback mechanism
(5)    A process to report risks internally and externally
(6)    A system of compensation that aligns interests with all stakeholders including taxpayers
(7)    A capital structure that is aligned with investments in the firm
All of these components need an accounting system and data from that system to assist in making informed judgments.
For example, pay systems that are geared to a standard-form accounting system based on reported earnings are susceptible to gambling[might be worth checking; but I think that when an American says “gaming” they mean “gambling” in British English] at the expense of shareholders and other claim holders.  And, in the current debate, we are unable to determine whether mark-to-market accounting is appropriate, the unintended consequences of marking-to-model (fair-value accounting), or the implications of original cost (hold-to-maturity value). For example, European governments recently allowed banks to mark investments at hold-to-maturity values and guaranteed all bank deposits and inter-bank loans.  The US requires mark-to-market (and, more recently, fair-value accounting) and does not guarantee deposits or inter-bank loans.  With opacity, guarantees are necessary.  When liquidity prices are high and fair values are far above market prices, maybe fair-value accounting is a better measure of value, especially if liquidity prices are mean-reverting.  On the other hand, is fair-value accounting an unbiased measure of value?  These are only a few of the examples that point to the need for regulators, accounting professionals, practitioners, academics and investors to fashion a debate that sparks the development of a new risk-based accounting system.
We have rules in place to handle fraud, false claims, consumer protection and other illegal behaviour.  We need enforcement of those rules.  Let us evaluate whether the rules or their enforcement was insufficient before larding more rules onto the system.
I agree with Professor Stiglitz that some innovations are developed to affect regulatory arbitrage, or tax arbitrage, or to game incentive compensation systems or inflate earnings. These are all tactical in nature.  I believe, however, that the vast number of innovations is strategic, adding value for savers, consumers and producers in the economy.  One piece of evidence to support the value of innovation has been the amazing increase in global wealth after the breakdowns of regulatory constraints in the 1970s and thereafter.
Following others, Professor Stiglitz proposes that we establish a “financial products safety commission” to vet products sold or acquired by financial institutions.  This is not a new idea.  We have such safety commissions in place for most of our financial products.  Rating agencies in the US, Europe and Japan have rated myriad financial over-the-counter and listed-bond instruments for over a century.  There are so many financial instruments that the proposed government commission would be overwhelmed and duplicate what already exists.  It appears on the surface that with regard to sub-prime structures and related tranches that the agencies became advocates and not advisors.  In fact, many trusted advisors, from lawyers, to bankers, to accountants, changed roles to that of advocate.  Analysis of why these advisors changed stripes is important to understanding incentives going forward.
Other “commissions” include bank competition and consumer advocate agencies such as Consumer Reports, personal-finance websites and other services on the internet.  Maybe the sub-prime mess resulted from wrong models, wrong inputs, bad management and wrong incentives.  In part, it might have resulted from smart sub-prime issuers who realised that there was easy money at the expense of issuers.


The opposition's rebuttal remarks

I find myself agreeing with much that Myron Scholes has said.  Part of the problem is that the financial system has become excessively leveraged.  Imposing restrictions on leveraging will have little impact on the overall cost of capital—the basic insight of Modigliani and Miller.  But it will make our economy more stable.  We both agree that regulation of this kind would be of benefit.
The key question in dispute is whether additional regulations are required.  Professor Scholes worries that such additional regulations will stifle innovation.  And he seems to believe that innovations in the financial market in recent years have lead to increased economic performance, but he presents no evidence that that is the case.  We do know that the economy’s current problems are partially related to what were at one time described as “innovations”—interest-only mortgages, 105% mortgages, low-documentation mortgages (also know as liar mortgages).  The same Modigliani-Miller theorem that he cites argues that much of the slicing and dicing—repackaging of existing assets—should have had little impact on the efficiency of financial markets, especially if financial markets were relatively efficient before these “innovations”. These innovations did increase the lack of transparency in markets, and the lack of transparency has much to do with the current problems, where banks don’t know their own balance sheets and thus know that they can’t know those of others to whom they might lend.  That’s why the government has had to step in, to provide guarantees, in order to get credit markets working once again.  
由自由创新带来的信息的不对称从宏观上造成了对整体的不利！所以政府须介入。
Is there evidence that the real cost of capital to firms in our economy has been lowered as a result of all of these innovations in a substantial way? And the lowering of costs has to be substantial—because the costs our overall economy is going to have to bear, as the economy sinks into a recession as a result of the financial crisis, are enormous, not to speak of the misallocation of resources that has occurred as hundreds of billions of dollars went into housing beyond people’s ability to afford and in places where it should not be.  Already, much of this investment is being trashed, as whole neighbourhoods are facing foreclosures and the blight spreads.   Much has been made of the financial cost of the turmoil, but there is a commensurate real cost, measured for instance by the gap between what the economy is likely to produce over the period of economic slowdown and its potential—a number that is conservatively in excess of $2 trillion.  
质疑自由革新的实质发作用：对方没有提供足够证据。
In my opening statement, I explained why regulations are needed.  Without regulations there is a risk of the kind of calamity we have faced.  Markets fail, and they fail systematically and frequently.  Professor Scholes is right: they fail with and without regulation.  But they have failed more frequently in the era of deregulation, partially because of deregulation.    We need well-designed regulations.  A regulatory system needs to be flexible, to adapt to changing circumstances.  It has to be market oriented and recognise the limitations and costs of regulation.    Restrictions on leverage are an example of one such regulation, but there are others.  
Most of us feel more comfortable knowing that the banks in which we deposit our money are not being run by criminals. Even if there were good regulations about what banks could do with depositor money, we know that they might circumvent them.   Having government regulations on who controls banks provides some confidence to the financial markets.  
Good information helps markets allocate resources well. Markets, however, often have an incentive for a certain degree of lack of transparency. That’s why there is increasing demand for transparency and disclosure. But that is not enough. Many of the problems in modern economies arise out of corporate governance, the separation of ownership and control. This gives rise to incentive structures that may benefit management more than shareholders. It is also clear that these incentive structures in financial markets give rise to short-sighted, myopic strategies that involve excessive risk taking. Excessive reliance on stock options has a further problem: it encourages bad accounting—efforts to increase reported profits—to pump stock prices up. The resulting deterioration of the quality of information in the marketplace inevitably leads to less efficient resource allocations—as we have seen.  
指出现行体制下的许多问题。
A simple regulation, such as speed limits, restrictions on the rate at which, say, any bank can expand its portfolio of mortgages, would have prevented a large fraction of the crises around the world, at relatively little cost.  
Well-designed regulations would encourage innovations that enhance the efficiency of our economy. A financial products safety commission that allowed banks to buy and sell “safe” financial products might encourage banks to innovate to produce mortgages that actually help people face the risks they confront—not products that force them out of their houses when interest rates or the unemployment rate rises.  Markets are marked by asymmetries and imperfections of information.  There is scope for those in financial markets to prey on less well-informed borrowers.  It has, for instance, been observed that there is a great deal of money at the bottom of the pyramid, and America’s financial system worked hard to make sure that it would not remain there.  They have engaged in widespread predatory lending.  The Fed has—a little late—now proscribed that.  That’s another example of the kind of regulation we need.  
Financial markets may have to work a little harder to innovate, but they can do that.  Venture capital firms are an example of the kind of innovation that has enhanced the flow of capital to new, high-tech companies.  But these Silicon Valley firms are a long distance from the wheeling and dealing that occurred on Wall Street.  If they actually devoted themselves to identifying, for instance, the real risks the economy faces, they might actually come up with products that address these risks.  They might have invented inflation-indexed bonds, rather than resisted their introduction.  
Some people will lose from the imposition of these regulations—those who would prey on the uninformed, those who would engage in excessively risky gambles with other people’s money. But most of us would benefit—a more stable economy may also be an economy that grows more rapidly.