The Hindu : Business : ‘Market is solving U.S. financial crisis on its own’

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Tuesday, May 20, 2008
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‘Market is solving U.S. financial crisis on its own’

Priscilla Jebaraj

Tightening controls is not the only answer, says David Mulford

CHENNAI: Tightening regulations is not the only answer to the crisis in the U.S. financial sector, according to David Mulford, U.S. Ambassador in India. He feels the market is well on its way to solving the crisis on its own.

“What we have to have to solve this problem is total transparency and people owning up and taking the accounting consequences and that is happening,” he said, during a visit to The Hindu office on Monday. “By the time the governments legislate what should happen, it’ll be past.” He feels that while governments should set up regulations that guard against excesses of this kind in the future, they should also be prepared for the new excesses that will come with the free market.

Mr. Mulford, who was Chairman International of Credit Suisse First Boston before his diplomatic appointment, tracked the evolution of the world financial markets from the 1960s onward, pointing out that their deregulated status enabled development of sophisticated instruments. “This process clearly got out of control,” he said, of the current crisis. But he disagrees with those now pushing to “tighten controls and put everybody back in the regulator box and punish people for this and that.”

Mr. Mulford does not see that approach as particularly useful. “I do think we should make improvements in our regulations, but the pain and the penalties and the suffering is going to be done by the banks themselves. They’re already doing it,” he said pointing to the write-offs accepted by major banks. “This is painful stuff. They’re letting people go, they’re suffering in their stock price, the wealth creation prospects of the people who work there have been completely demolished for the time being, and my feeling is that what is necessary to fix the problem is happening. Mainly, people are stepping up and taking the pain.”

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