I have removed my post from earlier today, quoting and discussing a New York Times story about Obama’s speech about Wall St. I read the article to be saying that Obama wasn’t very specific about what he hoped to do with new regulation, instead leaving the details up to Congress. He probably will leave the details up to Congress. but he was pretty specific in the actual speech. He said that new regulation will
- Establish a Consumer Finance Protection Agency
- Start regulating hedge funds
- Create some sort of umbrella organization to close gaps in regulation and look out for systemic risks
- Raise capital requirements on large institutions
I view the last point as the only one that can really make a difference and that it’s unlikely to be better than previous capital requirements were at preventing the current crisis.
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Serves you right for taking the NYT seriously.
Bubbles are like fluid. Regulations are like a sieve. As long as there is incentive and fuel for bubbles, bubbles will occur around any regulations. Unless maybe you impose North Korea style regulations.
One effect of the bigger capital requirements for “large” institutions will be that the institutions deemed “large” will be further insulated from competition because potential rivals will have to clear this barrier in order to step in the ring. As with the tobacco advertising regulations, this will make the big bigger and more exceptional. And in this case, more indispensable.
exactly.
I’m sorry, but none of (except raising capital requirements) is that specific.
The devil is in the details. What will a “consumer finance protection agency” do that current regulatory bodies aren’t already tasked with? Hedge funds are already regulated AND hedge funds were the only institutions to blow up all over the place without requiring a single bailout. What will regulating hedge funds do except raise barriers for potential competitors and cement existing behemoths on their current perches? What is an “umbrella organization looking out for systemic risk”? What does it look like? The problem is that the specifics aren’t specific.
I don’t think these guys realize that one can open and operate a hong kong firm from one’s living room in Iowa. That firm will not be subject to US regulators and thanks to technology, it doesn’t have to have a physical presence in Hong Kong or Singapore, or whatever country is interested in actually attracting financial firms instead of scaring them off.
These guys probably realize that capital can move to Hong Kong or Singapore; they just assume it won’t happen. Just like how they assume that we can run federal deficits forever without a problem or that we can continue to have the strongest economy in the world even if we remove that pesky profit motive.
They assume they won’t be blamed for it and voted out of office. They’re right. And that’s all they care about.