Ajay Shah has a detailed analysis of the regulations governing international investment by Indian mutual funds. His conclusion: “Small pieces of progress on economic policy in India seem to take a long time.” I entirely agree. There is a need to move much faster. Moreover the first thing that needs to be liberalized is access to global index products. The actual regulations appear to reflect not only the fear of a more open capital account, but also some degree of regulatory capture. Obstacles in the path of exchange traded funds serve to protect management fees in the fund management industry.
Nouriel Roubini’s Global Economics Blog has an aside on the interaction of Fed Chairmen with the media.
In 1987, the relatively inexperienced Greenspan did not know how to properly communicate his message and he rattled markets. He presented his views in the wrong forum by giving an interview to a Sunday television news show where he expressed his concerns about inflation; the next day stock markets sharply wobbled. He learned his lesson, realized the risks to his reputation, made a mea culpa, never again gave a TV interview for the following 20 years and became altogether Delphic in his public pronunciations. Ditto for Bernanke: after a congressional testimony on April 27th that was read by investors as dovish, he made the famous flap with CNBC anchor Maria Bartimoro telling her that he had been misunderstood and was more hawkish than the market perceived him. The next day – when Bartimoro reported this – equity markets sharply contracted and Bernanke’s reputation was shaken. Bernanke then made his own public mea culpa and you can be sure that – like Greenspan – he will never speak again to any TV reporter, either in private or in public.
This set me thinking about the issue of financial regulators interacting with the media. Should the selective disclosure regulations that apply to corporate managements apply to financial regulators? In principle, I think the answer is yes. The ideal solution would be for every financial regulator to maintain a blog and use that as the primary means of communicating with the outside world. If the regulator wants to respond to a reporter’s query, the response should be on the blog with due credit to the reporter who raised the query. If the media wants sound bytes and visuals that is fine so long as the regulator does not go beyond what is there on the blog. If there is any deviation, that should hit the blog very rapidly.
Transparency is imperative and a blog is today the most transparent medium available.