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Business Costs & Regulation

Fixing Our Financial Flaws

A Wall Street veteran proposes ways to avert the next crisis.

We interviewed Robert Pozen, chairman of mutual fund company MFS Investment Management and the author of Too Big to Save? How to Fix the U.S. Financial System (Wiley, $29.95).

One in five homes is worth less than the debt owed. What’s the best way to help underwater homeowners?

The current mortgage-modification program is geared to changing people’s monthly payments. But it doesn’t deal with the problem that people who are underwater are likely to re-default. I would support creating a federal housing corporation to buy back underwater mortgages and issue new ones for less than the old balance. To make it work, mortgage holders would sell at a discount, and homeowners might have to give up some participation in future profits.

Should shareholders have more input in the election of directors and compensation of executives?

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A say on the pay of executives, a requirement that directors be elected by a majority of shareholders, and staggered terms for board members should apply to all companies. For mega financial institutions that are very complex -- or for any big, global company -- I say let’s have small boards with expert members instead of people who show up six times a year. I’d like tosee a cadre of professional directors for whom sitting on boards is their main job. I’d want them to concentrate on maybe two or three boards and spend two or three days a month at each company.

You don’t like the idea of a wide-ranging Consumer Financial Protection Agency, as some in Congress have proposed. Why?

If bank authorities are regulating and inspecting deposits, do we really want a consumer protection agency doing the same thing? I favor such an agency in areas dominated by nonbanks, especially where we have seen abuses, particularly abuses in serving low-income consumers -- mortgage originations, payday loans and such. But for bank deposits and CDs? I don’t get it.

Are we running the risk of overregulating the economy and killing the golden goose?

I do think that it is possible to have too much regulation. It’s a trade-off. Take the idea that the Federal Reserve should rule on whether a bank’s compensation arrangements promote too much risk-taking. It just seems like a bad idea. Can regulators really hope to do that intelligently?