Sheila Bair, Bear Sterns, Bare Knuckles

The regulators are starting to weigh in (the boxing metaphor) on financial regulation. Sheila Bair, FDIC director, gave an interesting interview tonight on the PBS News Hour. Her comment in response to Paul Solman's question about the Christopher Dodd, D-CN, financial regulation bill: "I believe strongly in checks and balances." Reading between the lines, there are no checks and balances on the Federal Reserve. Checks and balances require multiple regulators with clear missions watching not only the regulated but each other.

But, she didn't explain how to avoid regulator shopping (looking for the regulator who will give you the best deal). This problem exists throughout the Federal government and is not unique to the banks. In bioterrorism, for example, university laboratories would rather be regulated by the CDC than by the Department of Agriculture, the later being perceived as uninformed about and out of touch with university research. Multiple regulators, regulator shopping, captive regulators and poor regulators are just some of the problems surrounding practical regulation. There's the bell for round one.