Transcripts

"Commentary"-Regulation To Rescue The Economy

SUSIE GHARIB: Tonight's commentator says beefing up regulation is the only way to revive the markets. He's Glenn Hubbard, dean of Columbia's graduate school of business and former head of the Council of Economic Advisers.

GLENN HUBBARD, GRADUATE SCHOOL OF BUSINESS, COLUMBIA UNIVERSITY: Regulatory lapses played a big role in our current financial market woes. But a recent report from the nonpartisan Committee on Capital Markets regulation tells us that three key changes can both increase the effectiveness of regulation and jump start financial markets. First, regulation should better address systemic risk threatens the economy. Large, too big to fail institutions should hold more capital. And current capital rules contributed to the downturn, as banks are forced to raise capital as losses mount and capital is depleted. We should instead require higher capital in a boom or allow banks to hold contingent capital as losses mount. Second, we need greater transparency to protect investors. Doing so requires increased disclosure of originators' interests in securitized offerings. And high-risk practices, such as no doc loans, should be banned outright. Third, we need a more effective regulatory structure. Our current patchwork quilt of agencies comes with a very high cost. Replacing this system with a consolidated focus will help restore financial health -- the Fed for systemic risk, a new U.S. financial services agency for financial regulation and possibly a new investor protection agency. The time for reform is now. But now is also the time for serious thought, not knee-jerk responses. Let's hope Washington listens. I'm Glenn Hubbard.