[Viewpoint] The finance industry behind bars

‘Your heart feels weighed down for no reason. A trifling matter sticks in the head and haunts your sleep. Emotions become hard to control. It’s hard to shake off a feeling of general discomfort. You try putting on brave airs, but get no comfort. Particular words and actions become annoying. Do you have these symptoms? Then you have an inferiority complex,” writes therapist Chung Seung-ah in a book called “Complex Is My Power.”

They may be the world’s superpower, but Americans too suffer from neurotic illnesses. The culprits sit on Wall Street. They are called “thieves,” and they work little but earn loads. They devastated the economy and then lived extravagantly on taxpayer bailouts.

They also cook up incomprehensible financial instruments to escape supervision from authorities. They are greedy and unstoppable. They may calm down after a little remedial therapy, but soon return to their old ways. They may be incurable.

Yet U.S. President Barack Obama promised he would conquer this complex within the financial industry. He battled heavily with politicians and Wall Street in search for a cure.

His efforts finally paid off. Last week, the U.S. Senate passed a sweeping reform bill for the financial sector. The media touted it as the biggest overhaul of the industry since the 1930s.

The bill is largely focused on regulating the banking sector’s derivatives trade and strengthening oversight to protect consumers from predatory lending and high-risk, intricate products as well as addressing the deep-rooted practice of TBTF - Too Big to Fail.

The bill differs in some details from the measures approved by the lower House of Representatives in December, but coincides in its main framework. The Congress will seek to merge the two bills and prepare it for signing by the president, at which point it will become law sometime next month.

President Obama has confidently shown that Wall Street’s recklessness was culpable for wreaking havoc on the international economy and made sure that the new law will prevent a recurrence of such a financial crisis.

The efficacy of the law is, frankly, beyond my concern. What’s worrisome is the immediate repercussions on our economy. Because the United States tends to believe its standard is the global one, it won’t likely keep its hard-won cure to itself, especially concerning the regulation on derivatives.

American banks now account for more than half of all derivatives trading, over $10 trillion a day. Fees alone top billions of dollars a day.

American investment banks have been blamed for the financial meltdown. But they still generate immense wealth for the country. So binding them in chains will do more harm than good to the economy. That’s why the Republicans and Wall Street have been campaigning against the reforms.

But the Democrats and Obama probably have no plan of handing over the cash cow to other countries. Instead they will likely sell the same cure to financial industries around the world.

The G-20 Summit in November will likely be their marketing platform. The United States will in all likelihood aggressively sell its set of policies, which will be hard to resist when hyped as the foundation of a stable, global financial system.

But we cannot easily buy it. The derivatives market here is still a fledgling. Pulling and stretching is what it needs, not nipping and tucking.

We also have a chronic inferiority complex with foreign exchange. The won takes a beating on signs of unrest in the global financial market. It nose-dived during the financial meltdown two years ago. Our currency paid a heavy price for the mistakes and greed of American financiers.

The cure will likely last 20 years at the longest, experts say. The regulations will probably ease over the next two decades and we will go back to the greedy money game.

Jeffrey Garten, former dean of the Yale School of Management, recalling that the history of Western financial societies has evolved through an alternating pattern of laissez-faire attitudes and regulation for two decades, predicted the new regime will run on a similar time frame.

Beasts in cages cannot be completely tamed. Once they are let out, say after 20 years, the beasts will run even wilder. If the local market remains vulnerable then as well, it is bound to be victimized.

There is only one way to prevent such a catastrophe: Our financial industry should be toughened up. Experts should be bred and the derivatives market should also expand. They must act on it while the beasts are in the cage.

*Translation by the JoongAng Daily staff.
The writer is a business editor of the JoongAng Sunday.

By Yi Jung-jae