Veteran business newscaster Ron Insana provides his perspectives on the financial crisis and regulatory failures that enabled it.
By Kenneth Cline
Ron Insana is a familiar fixture on television business news and analysis, appearing on CNBC and its predecessor Financial News Network for nearly three decades. He was named one of the top 100 business journalists of the 20th century by the TJFR Group in 1999.
With such an extensive background in financial news reporting, Insana can provide some interesting perspectives on the recent financial crisis and current state of the U.S. banking industry. He turns out to be an admirer of Federal Reserve Chairman Ben Bernanke’s handling of the crisis and a fan of JPMorgan Chase & Co. CEO Jamie Dimon as well. Of the Dodd-Frank legislation he is less enamored, noting that the regulation does little to correct the abuses that led to the crisis.
Dodd-Frank “missed the point, which was the need for more active supervision of existing regulation,” he says. “The real failure of the regulatory environment over the last 25 years has been one of active supervision.”
In October, Insana will appear onstage at BAI Retail Delivery in Chicago to discuss corporate change and industry transformation with former Southwest Airlines CEO Howard Putnam.
Q: You’ve been in the financial journalism business for 27 years, since 1984. Have you ever seen a crisis to match this one?
Insana: This is the worst crisis I’ve seen since the early 1980’s. And on an overall basis, it’s the worst since the 1930’s, doing widespread damage to the financial system. I think people still fail to appreciate just how close we came to a global systemic meltdown of the entire financial infrastructure. Previous crises like the collapse of Long Term Capital, the tech bubble and Asian currency crisis were mainly stock market phenomena. This one involved housing, financial services, credit markets and really all manner of investments. And they all went down simultaneously; there was no place to run or hide.
Q: How much damage do you think banks still need to overcome; how would you assess the progress the industry has made coming out of this mess?
Insana: My opinion is, to a certain extent, a minority one, but I think Fed Chairman Ben Bernanke handled the situation brilliantly, given the economic tools that he had at his disposal. Two and a half years after the crisis, banks have a trillion and a half dollars in excess reserve sitting at the Fed, their capital ratios are far more substantial and profits have rebounded. We are not facing, certainly not as this moment, any apparent systemic risk.
There could be some risk from the European debt crisis, but that is not of our own making, and that is not necessarily an issue that will plague American banks. I think U.S. banks have been repaired remarkably. Whether or not banks and brokers should still be tied together remains an open question, but for the moment, the shotgun marriages in the wake of the crisis that merged brokerage houses with banks in order to save both are doing okay and for now, we’ll have to live with that.
Q: Aside from Bernanke, are there any other heroes to emerge from the crisis in the financial services area?
Insana: Among the bankers, there’s Jamie Dimon. He was one of the straightest players in the business, both in absolute and relative terms. I think Don Kohn, who was the vice chairman of the Fed at the time, was one of the sane voices inside the Fed arguing against letting the market fix the system on its own, which I think would have led to a complete catastrophe.
Q: What lessons do you think the bankers learned from this crisis – or should have learned?
Insana: As we’ve seen many times in the past, financial engineering and leverage is effectively the most combustible combination you can see in a financial system. And to engage in that type of behavior during this most recent credit and housing market bubble was one of the most irresponsible acts I’ve ever seen.
Now, there are a lot of people to blame. There are the actors who engaged in it, the regulators and supervisors who failed to police it, and to a much lesser extent, even the individuals who took out loans that were well beyond their means, and then willingly took on far too much risk. But effectively, from a banker’s perspective, they should know better. Bankers know the limits of risk. The people who ran their shops into the ground were irresponsible in the way in which they handled their duties as leaders of financial firms.
And I don’t think bankers learned those lessons; they just repeat those mistakes while they’re making tons of money. They usually take the bait and make the mistakes. That’s part of human nature and it’s kind of hard to repeal, but I think they ignored the lessons of history when they got involved in this crisis.
There was one individual by the name of Mike Mitrinko, who used to work on the floor of the New York Stock Exchange. He has since passed on but I spoke to him when he was in his nineties over a decade ago. He had been on the floor since the 1929 stock market crash and told me that “the game never changes, only the names do.” And I think I never heard a more accurate description of what happens on Wall Street than that.
Q: In the wake of the crisis, the banking industry has been hit by some tremendously heavy regulation, the Dodd-Frank law for example. Bankers, of course, are arguing that this regulatory push-back is excessive. What’s your view?
Insana: Dodd-Frank is not well thought out in the sense that they’re regulating things that have really very little to do with the crisis that we experienced. Dodd-Frank contains about 235 different regulatory changes that have to be implemented by regulators. It’s so complex that they’ve already extended the deadline for a lot of the changes. So, I don’t think it was a good piece of legislation; it missed the point, which was the need for more active supervision of existing regulation.
The real failure of the regulatory environment over the last 25 years has been one of active supervision.
Q: What do you think about the new Consumer Financial Protection Bureau? Is it really needed?
Insana: I don’t have a real problem with that, although we have so many regulatory and supervisory bodies already that oversee consumer fraud. I don’t know that we need, necessarily, to build out another bureaucracy to do that.
Again, I wish they would fund the agencies that exist properly, and hire people with some serious experience, so there could be more vigorous supervision and more intelligent regulation of the environment than just pile on another agency. In my estimation, that’s the real solution, as opposed to what we’ve seen so far.
Having said that, there’s an obvious need that hasn’t been met to educate consumers about unintended risks in the financial markets.
Mr. Cline is managing editor of BAI Banking Strategies. He can be reached at email@example.com.