Most of these and other changes in the bill are not based on a serious analysis of what contributed to the financial crisis, but rather are the result of political and emotional reactions to the crisis. Usually, such reactions do more harm than good. That is likely to be the fate of the great majority of the provisions of the Dodd-Frank bill.I have a simple test. Is Glass-Steagall resurrected? That is, has interstate banking been outlawed, and the commingling of investment and commercial banking forbidden? Glass-Steagall rescued the banking industry in the Great Depression and kept it safe for more than half a century. We had more imaginative legislators in those days.
Monday, July 12, 2010
Critique of the financial reform bill
From Becker and Posner. They find the bill to be a political exercise substantially disconnected from the actual causes of the financial panic. Their most important point is that regulatory bodies had all the power they needed to intervene to avert the crisis, but they declined to act. Giving them new powers to not use won't change that equation. Becker concludes:
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