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Congressman Alan Grayson had some interesting comments at Barry Ritholtz's conference today:

Grayson appeared on a panel with Nassim Taleb, best known as the author of The Black Swan. Their exchange about the proper role of government regulation of the financial system was entertaining, if a bit meandering. Grayson, who grew up in the Bronx and holds three Harvard degrees, has a rare ability to say relatively radical things without coming off as a rabid populist. Moderator Barry Ritholtz, author of the just-published Bailout Nation, asked a straightforward question: The U.S. government does a reasonably good job of regulating things like the safety of airplanes and foods. Why, then, does it do such a lousy job of regulating the financial system?

Grayson's answer was immediate and succinct: "Capture." For those not up on regulatory theory, this refers to the notion that regulators become captive of the industries they regulate. Noting that Fannie Mae and Freddie Mac spent $100 million on campaign contributions over the last 10 years, Grayson said: "The system is in some sense corrupt. A senator said the other day that Wall Street owns Washington, and while I might not go that far, you don't have the airlines ‘owning' the [airline regulators]. There is a lot of influence that Wall Street has on the government, even the judicial branch." Indeed, Grayson could have cited the front-page story in today's Wall Street Journal, documenting the remarkable efficiency with which banking campaign contributions appear to have helped ease accounting rules that in turn helped the banks.

Posted by edelfenbein at June 3, 2009 4:17 PM