A quote from Mark Thoma pointing out regulation in banking works:
"...after decades and decades of instability in the 1800s and early 1900s, followed by the massive bank failures of the early 1930s, regulations were imposed to stabilize the banking system. The result was sixty years of calm in the financial sector. That's hardly a failure of regulation. It wasn't until the shadow banking system began growing outside of the regulatory umbrella that problems began to reemerge..bringing about another decades long period of relative stability will require the regulatory umbrella to be extended to cover all firms within both the traditional and non-traditional (or shadow) banking system, hedge funds included."The risk takers should not be the banks, but their entrepreneurial customers.
The other key factors behind the sub-prime mess were human failure, greed and the failure of self-regulation. Since humans are crafty and always look for the advantage within regulation, how do you curb such inevitable behavior? If we are serious, two ideas would be more forceful punishment of contra-regulatory activity and higher marginal rates of taxation.
Not sure the get-rich-quick Ponzi boys on Wall St. can handle that, but it is what the public voted for last November.
Source: Economists View
No comments:
Post a Comment