Harvard Headlines: Fifteen Economists Publish Plan to Regulate the Financial System
The Squam Lake Report (Princeton), a book-length set of recommendations for reform of financial regulation, was published today by 15 economists, including former advisers to Presidents Bill Clinton and George W. Bush. The group first convened in November 2008, at the height of the financial crisis, and continued to work on their proposals over the next year and a half. Among the group are Safra professor of economics Jeremy C. Stein, Converse professor of finance and banking David Scharfstein, and Olshan professor of economics and department chair John Y. Campbell, who moderated a panel of Harvard professors examining the crisis in February.
The economists recommend eight core steps, some of which are included in the House and Senate bills being reconciled in a congressional conference committee; while they believe the legislation will be helpful, they propose additional measures, such as partially withholding managers' pay over several years, which would ideally make bank executives act with longer-term perspectives. The Fed, according to the Report, would be the best organization to monitor the financial system, but the new legislation instead aims to create a Financial Stability Oversight Council. Other proposals in the report involve transparency, higher capital requirements, and the issuing of contingent convertible (CoCo) bonds. The New York Times quoted Matthew J. Slaughter of Dartmouth's Tuck School of Business as saying, "Our target audience was not other academics, but key decision-makers, not just in the U.S. but other countries as well." (The Times reporter is Sewell Chan '98, a former Ledecky Undergraduate Fellow at Harvard Magazine; he now covers the Fed and financial regulation for the newspaper's Washington bureau.)