Question

In: Finance

Wall Street is always looking for a new way to impact the financial markets. Can regulators...

Wall Street is always looking for a new way to impact the financial markets. Can regulators really stay a step ahead of Wall Street in trying to prevent future excesses? Consider that over a decade ago, Enron executives were viewed as "The Smartest Guys in the Room" (and were portrayed as such in the CNBC documentary that analyzed why Enron outsmarted regulators). Enron was continuously supported and aided by investment bankers. Who will bankers, investors and hedge funds try to outsmart next?

Solutions

Expert Solution

Yes, regulators can stay a step ahead of Wall Street in trying to prevent future excesses. The regulators will just have to keep their ears very close to the ground and their eyes open. Wall Street is driven by greed, more than anything else and hence regulators will have to start thinking like executives in Wall Street. The regulators will have to determine what new strategy Wall Street executives can employ in order to generate large amounts of profits. The regulators will have to stay ahead of the curve and this can be done only by thinking like executives of Wall Street.

Bankers, investors and hedge funds will try and outsmart the general public next. In future bankers and hedge funds will develop financially engineered products within the domain and limitations of law to lure general public to invest their money in these products. Although this happened before the 2008-09 financial crisis in which CDO was the main culprit this time it will be different. The 2008-09 crisis happened partly because regulators were not able to prevent financial institutions to leverage sub-prime instruments. In future bankers and hedge funds will come out with new financial engineered products that will be within the constraints of law but still will be used to outsmart the general public and investors.


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