Algorithmic Agony

Algorithms, short selling, leveraging... I have no idea what any of these terms mean. I'm an English major from the 126th ranked undergraduate institution in the country. My financial portfolio consists of a bank account and a checking account. For a while there I also had money in the stock market where I owned 10 shares of Petrobras (PBR). That didn't work out too well. All in all, I'm about as financially savvy as former Boston Celtics star Antoine Walker. Needless to say, I am completely incapable of understanding any of the financial news that's been flowing from Washington and New York over the past eighteen months. Apparently some bubbles popped and now, a year and a half later, I'm working in a job I could have done out of Junior High (I like to think that the two are correlated so as to not bruise my self-esteem). The one upside to my ignorance is that being grossly uninformed about the nations financial troubles puts me a in an ideal position to write about the financial reform bill on this blog. In the end though, I don't think anybody knows what's going on, with the exception of Ben Bernanke, Timothy Geithner and that Harvard undergrad who wrote that thesis.

The bill seems to have run through the same course as every other major bill of the past few months; Obama talks about it, Democrats propose it and Republicans unanimously say they hate it. Republicans say it's a bailout and that it will hurt the competitiveness of our nation's financial industry. The Republican bailout argument seems like pure political posturing to me. From what I've read, the bill would include an emergency pool of money, funded completely by the banks themselves, that would serve as a cushion if another major collapse occurs. Republicans make it sound like it's another tax payer bailout. Their misinformation campaign seems to have worked. After filibustering for three days the Republicans forced the emergency fund out of the bill.

The competitiveness argument makes sense though. If we place restrictions on our financial industry it could become less agile in an ever changing marketplace. It's like adding extra padding to a running back in football. He may be better protected but he will likely not run as fast or be as nimble. Is the trade off worth it? After smarting from the recession it feels like it now but in the long run it may drag us down.

In my uninformed opinion less is more with the financial reform bill. Financial firms don't need new restrictions to learn from their mistakes. Although many of the banks and insurance companies who caused the financial collapse received bailouts, there is still a natural incentive for them to avoid their prior hazardous practices. The brands of AIG, Citi Bank and others have been permanently tarnished, at least in my eyes. I will never bank with Citi and never buy insurance through AIG. I already hate Manchester United so no change there. The hit to their brand equity is in addition to the financial losses and layoffs the company suffered despite the bailout. Causing another financial meltdown is not in anybody's best interest. I believe the financial industry will police itself to a large extent.

I also worry that in the aftermath of an ugly recession the bill will go too far. When people are angry and hurting they overcompensate and overreact. Think Iraq and the Patriot Act after 9-11. A bunch of angry representatives and a bunch of angry, vocal constituents is a recipe for some pretty extreme policies. Reading Yahoo articles that call the financial reform bill "tougher than expected" is unsettling. In this fight I hope Republicans can dumb down the bill before it gets steamrolled through Congress.