Financial sector frets reform may hit business

Reuters via Fidelity.com ^ | April 26, 2010 | Paritosh Bansal and Megan Davies

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BEVERLY HILLS, California (Reuters) - Financial services executives are apprehensively watching regulation reform make its way through Washington, worried measures such as a bailout fund and restrictions on derivatives would hurt business.

But executives, investors and advisers at the Milken Institute'sGlobal Conference agreed on the need for reform of financial regulation to prevent crises in the future.

"We need a bipartisan bill here because we need both sides to contribute their best ideas to this reform. And we need reform," said Kenneth Griffin, the chief executive of hedge fund Citadel Investment Group. "It will hurt business if we end up with poor legislation."

Indeed, the future shape and profitability of the banking industry hangs in the balance on the most sweeping overhaul of U.S. banking rules since the Great Depression, which is making its way through Congress now.

Mohamed El-Erian, co-chief investment officer of Pimco, which manages the world's largest bond fund, said the banking system "is on a journey toward being much more utility-like because the benefits of stability today are being viewed to exceed the benefit of efficiency."

"No society can accept a system that privatizes massive gains and socializes massive losses," El-Erian said. "And therefore there will be a reaction, and history tells you that's likely to be an overreaction."

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This is a fairly good summary of the political debate concerning the Dodd bill. Unfortunately, the bill itself does nothing to keep another housing bubble from ocurring. It merely attempts to dictate winners and losers when the next bubble hits. Poor legislation.