When are investors like termites? When they are trying to avoid government rules.
And that is one reason new regulations won't prevent another crisis like the subprime housing mess, Boston College finance professor Edward J. Kane said at the recent annual financial risk roundtable held by the Wharton Financial Institutions Center and the Oliver Wyman Institute. Writing new rules is tempting, but it leads to "regulation-induced innovation," Kane said. "People being regulated are like termites. They go away from the poison and go after the wood. They're intelligent."
This year's roundtable focused on the housing and banking crises. And while participants identified a host of problems that led to the bailout of Bear Stearns and capital crises at other banks, agreeing on solutions proved as challenging as destroying pesky bugs.
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