In the WSJ, Gordon Crovitz writes that Wall Street is more mature than Washington:
Wall Street is working its way through the cycle of grief that starts with shock and denial, progresses to accepting responsibility and eventually gets to the stage of learning from mistakes. In contrast, Washington remains stuck in the denial phase, with political leaders refusing to admit that their actions have any responsibility for the credit panic. This matters because regulatory denial is suppressing confidence in markets, especially now that the country’s financial capital is in Washington, not in New York.
On Wall Street, it pays to admit mistakes, then at least try to make different mistakes the next time around. The best news last week was the little-noticed success in settling the credit default swaps relating to Lehman Brothers debt, which had caused anxiety about the potential losses.
Traders called this bellwether for the opaque, $62-trillion market a “nonevent.” Having learned the hard way that opaque markets are risky markets, the private sector is trying to bring transparency to credit derivatives, either by creating a clearinghouse to centralize information, or through an exchange with disclosure of prices and conditions. Derivatives would again reduce risk, not heighten it.
But Washington’s culture is fundamentally different from Wall Street’s culture. Politicians of all parties thrive by avoiding responsibility and shifting blame. Congress has not even held hearings yet in the area where it is most clearly responsible: social engineering through banking by pumping mortgages to unqualified borrowers via Fannie Mae, Freddie Mac and laws that required banks to make bad loans. Hearings are promised after the election.
A proper role for government is to require better disclosure of information. This would help balance risks and rewards. Just as in the 1930s, more transparent information would restore trust in financial markets, both in Washington and on Wall Street. If Washington can catch up to the private sector in admitting its mistakes, we can move beyond the credit crisis and forward to restore stability, with an end in sight to the current cycle of grief.