The Financial Referees Never Left the Locker Room

Typically I’m the last one to say that we need more Government intervention, however there seems to be a real lack of oversight within the financial sector.  I’m all for free markets and capitalism, believing that markets will self regulate themselves, but at what point do you step back and say we need a referee?

Besides my family, I have two passions in life; finance and sports.  The two of these tend to share many similarities including competition, winners and losers, and hopefully respect for the players and all involved.  Over the past two weeks I’ve been asked about a thousand times to help explain the financial disaster which has recently occurred in the stock market and how it could come to this.  One of the best analogies I like to use relates to a football game without any referees.  You have two teams with multiple players, coaches, and fans involved.  At the beginning of the game you have two teams that fully intend to play by the rules and carry out sportsmanship while still trying to win.  During the first half of the game things go as planned and the two teams play by the rules, but at halftime one team is losing and begins to feel the pressure of the coaches and fans.  During the second half both teams begin to slowly stop playing by the rules in order to achieve the end result of winning and making all the coaches and fans happy.  They’re able to play this way because there are no referees on the field.

Think of the recent economic recession in the same light.  We have a lot of fans(everyday Americans), players (financial advisers, planners, brokers, etc.) and finally the coaches (CEO’s, GM’s, Hedge Funds and Mutual Funds).  The deregulation of the financial sector has left the game without any referees.  Some teams decided to win at any cost without having to worry about being penalized or disqualified by a financial referee.  Now they are finding themselves in the league commissioners office (Congress, Treasury Dept, FED Reserve) explaining why we have a field of injured players.

Clearly we need everyone involved in our country to play by the rules, and I’m 100% for free markets, but it doesn’t hurt to have a referee on the field to enforce some rules and keep us focused.  I hope this analogy sheds some light on what has happened recently to our financial sector.  If you have any comments or a better analogy we’d love to hear it!