Kenneth C. Griffin is not pleased with the current state of affairs on Wall Street. As Andrew Ross Sorkin writes in his latest DealBook column, the founder of Citadel Investment Group thinks the entire industry needs an overhaul of its mindset â and maybe even more regulation. This sort of tub-thumping might be expected from certain quarters far from The Street, Mr. Sorkin writes, but Mr. Griffin is one of the financial industryâs most successful sons. A Wish List for Fixing Wall Street By ANDREW ROSS SORKIN Kenneth C. Griffin, who runs one of the biggest and most successful hedge fund firms, has a blunt assessment: âWe, as an industry, dropped the ball.â The breakdown happened, Mr. Griffin contends, when big investment banks gambled away money and jobs during the late great credit boom. The bosses let all those young gung-ho traders take far too many risks and now everyone is paying the price. But the answer is simple, in his view. The entire industry needs to overhaul its thinking and, believe it or not, perhaps even accept greater regulation. Wall Street might expect that attitude from an outsider, one of the after-the-fact naysayers with a grudge against capitalism. But Mr. Griffin, the baby-faced founder of the Citadel Investment Group, the $20 billion hedge fund, is quite the opposite. And he, too, is frustrated about the mess in financial services. âAs an industry, we have a responsibility to manage risk in a way that is prudent,â Mr. Griffin said matter-of-factly. He is upset that the investment bank Bear Stearns ran aground. He is annoyed at the big-name chief executives who took too much risk and then watched as billions of dollars of value vanished from balance sheets. He is anxious about high-priced finance jobs moving abroad. And he is particularly galled with regulators in Washington who have overseen what he calls âthe great depression on Wall Street.â Mr. Griffin, 40, knows what he is talking about. His meteoric rise began when he started trading bonds out of his dorm room at Harvard University. He is normally reluctant to make public pronouncements and when he does, he usually leans toward circumspection. So I was surprised that he was so outspoken when I ran into him in the hallway two weeks ago at the Milken Instituteâs Global Conference in Los Angeles. He was preparing to speak that afternoon on a panel, where he admonished some of his own peers and trading partners, chiding the industry that has helped vault his net worth to $3 billion, according to Forbes. âWhen you read that UBS did not even view parts of its mortgage portfolio as having market risk, it becomes very obvious that a number of firms were not dotting the iâs and crossing the tâs when it comes to risk management,â he said while on the panel to a packed room. How did it come to this? A problem, he says, is youth and inexperience â and thatâs coming from a former child prodigy. âWalk across any of the trading floors â they are full of 29-year-old kids,â he said. âThe capital markets of America are controlled by a bunch of right-out-of-business-school young guys who havenât really seen that much. You have a real lack of wisdom.â On top of that, many chief executives of big universal banks, the ones that combine all sorts of financial services under one roof, âonly understand a small part of the business,â Mr. Griffin said, suggesting too many of them come from sales backgrounds. Put those two things together, the traders and the chiefs, and you have the making of an outright debacle. The problem is compounded further by weak government oversight, he said. âThe unwillingness of the Federal Reserve and the S.E.C. to require working capitalâ limits, he said, only exacerbates the risk-taking environment because the banks are playing the equivalent of no-limit poker. âThe sad truth of the matter is it didnât have to be this way,â he said. But Mr. Griffin isnât just a serial complainer. He has thought about solutions. First, âthe investment banks should either choose to be regulated as banks or should arrange to conduct their affairs to not require the stop-gap support of the Federal Reserve,â he says. But thatâs not all. He also wants new government oversight of the arcane world of credit default swaps, a business with a notional value and risk of $50 trillion. âEveryone is missing the elephant in the room,â he said. It was the interlocking relationships between thousands of investors and banks over credit default swaps that pushed the Fed to help rescue Bear Stearns. In particular, Mr. Griffin wants the government to require the use of exchanges and clearing houses for credit default swaps and derivatives. That way, instead of investment banks playing matchmaker between parties, an exchange will do it with strict rules in place, eliminating billions of dollars in exposure and creating more transparency. âItâs not sexy, but itâs simple, itâs cost forward, its straightforward, and itâs what we should have done after 1998,â referring to the collapse of Long-Term Capital Management, a big hedge fund. He added that it âis a very sad commentary on where we are from a regulatory perspectiveâ that such a move hasnât happened already. Of course, most big investment banks would hate such a plan, he acknowledged by telephone last week. âThe investment banks and commercial banks benefit from the lack of transparency because they are the intermediary,â he said. (It also has the effect of making Mr. Griffinâs firm more money by cutting out the middleman.) But he also wants to warn against going too far. âIt may be a moment in time where there is quite a bit of fervor to put in place significant regulatory regimes that in my opinion could set this nation way back on the playing field,â he said. Heâs particularly nervous that excessive regulation could send more jobs overseas. âI see thousands and thousands of jobs at Canary Wharf and in downtown London, jobs that should have been in America in financial services. Derivatives really were developed in America and because of regulatory uncertainty left America.â And despite blaming youth, he conceded, inexperience isnât all bad, at least early in his own career. âThe naÃ¯vete of youth can be an asset,â he said with a laugh.