Several caveats to Levitt's otherwise headline-positive testimony this morning before the House: currently, he is a well-paid consultant to the Carlyle Group and to Goldman Sachs; he doesn't believe in limiting the size of financial institutions (see below); and during his tenure at the SEC, he did nothing to further the safety and transparency of markets, unless you consider granting Enron the off-balance flexibility to blow itself to smithereens to have been a positive experience.
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Levitt:
- I would like to suggest that the more critical question is whether any regulator or groups of regulators can have the same impact as well as a resolution authority created explicitly to impose discipline on those with the most power to influence the level of risk taking: the holders of both equity and debt of the institutions which may be too big to fail.
- And so in my view the discussion over the proper authority to oversee and regulate systemic risk, while critical, is secondary to the powers given to a resolution authority to impose discipline through the process of sending these institutions to their demise and thus severely impacting holders of the debt and equity.
- Clearly, a series of other rules - banning the use of off-balance sheet vehicles, to name just one - would move information about major institutions into the public sphere, making it possible for market participants to price risk appropriately and for a systemic risk regulator to demand fresh infusions of liquidity or higher margin requirements if needed.
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Prepared Remarks from Paul Volcker and Arthur Levitt:
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