In an aggressively global economy, do we really have any power anymore? If we try to change the rules in the US, won’t business just outsource everything to China?
Actually, according to BusinessWeek, Europe just showed us we’ve got a lot more power than you think. Europe’s in the middle of passing a bunch of new rules around Finance — and they won’t just affect folks in the Old Country.
U.S. firms will have to play by the new rules—or find a way around them. Otherwise, they risk losing a large pool of buyers, including European pension funds, insurers, and other big investors.
If anything, globalization gives us the power to set global rules if companies anywhere in the world want access to our markets. Take the case of mortgage-backed securities.
In May the European Parliament passed a plan that likely will force banks and others to maintain a 5% stake in the asset-backed securities they create, rather than selling them off completely. Lawmakers reason that firms with more skin in the game will adhere to strict underwriting standards; lax practices fueled many of the blowups in the bust. “European regulators want to make sure regulated institutions aren’t being used to offload risky securities,” says Rick Watson, managing director of the European Securitisation Forum, a London-based trade group.
The U.S. is mulling a similar law. Whether or not federal lawmakers pass it, U.S. firms may decide to keep a chunk of the investments anyway. If they don’t, their securities won’t sell in Europe, where investors owned more than $500 billion of U.S. asset-backed securities at the peak.
So yes, companies can threaten they’ll leave if we pass new rules. But if they want to sell to us? They can run but they can’t hide.
