Is Basel III Anti-American?

by Russ Roberts on September 28, 2011

in Financial Markets

I channel my inner Arnold Kling in this piece for the Times’s Room for Debate.

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Falcon September 28, 2011 at 5:41 pm

Russ, Great commentary.

Also on Dimon: NY Post is reporting his support is “stray[ing] to Republican contender Mitt Romney” after being a long time Democrat supporter. Crony capitalist indeed.

muirgeo September 28, 2011 at 5:45 pm

Good piece. Looks like no one likes Jamie Dimon.

This sounds like what Professor Anat Admati was pushing for when you interviewed her on Econtalk… another great interview.

Banks need to be made to keep things simple and nothing more. Boring banking is good banking.

Stone Glasgow September 28, 2011 at 6:02 pm

Banking regulations themselves are anti-American. The business of banking should be like the business of big box retail, allowing competitors to create a “Walmart” of banking.

vikingvista September 28, 2011 at 6:25 pm

It certainly is anti everything that I admire about America. But I suppose at some point I have to come to accept that “American” now represents some things that I don’t admire, particularly where it contradicts the more admirable characteristics of its youth.

Mesa Econoguy September 28, 2011 at 6:57 pm

Is it anti-American? Yes.

Is it anti-banking, particularly anti- euro-vapor banks? Yes, but they likely won’t have to comply, as either they exempt themselves from the requirements, or many fail before it is fully enacted.

The European banking “system” is literally running on fumes right now.

Greg Webb September 30, 2011 at 2:02 pm

The European banking “system” is literally running on fumes right now.

Yes. And, it will take about $2 billion Euros to eject Greece from the monetary union, bail out the banks, and bail out Italy and Spain as well. A tremendous cost, but one the Germans will eventually pay.

Anotherphil September 28, 2011 at 10:16 pm

Russ, you are absolutely right about the exclusive language. (Of course, all fields have jargon, even economics). Its when its DESIGNED to be a term of exclusion, rather than a term of art that it becomes something of an insidious malefaction.

However, one thing that is missing from your analysis is how much more prevalent such language is in heavily regulated fields. Terms are invented not as needed but as “designed” by lawmakers. Its hard to imagine, but health maintenance organizations (HMO’s) that were so much the object of the left’s ire on the march to ObamaNocare were invented by non other that Ted Kennedy in 1973 legislation.

Another problem is that the regulatory apparatus is often left to put the meat on the bones of laws that are left vague in order to gain passage.

Even better, sometimes the same word is used differently in different laws regarding the same topic. In the United States, employee benefit plans are dually regulated by the IRS and the Department of Labor. Both use the term “highly compensated employee” but the IRS’s definition (due ironically to the precise nature of tax legislation) is a simple series of easy mathematical tests. The DOL uses the term to mean “big shot” because the principal law (ERISA, 1974) was vague-because 12 years after the Studebaker mess, Congress wanted credit for “fixing” a problem and so much of ERISA kicked the can to the “experts” in the DOL. As a result, highly compensated employee really means highly influential employee and that inevitably a “facts and circumstances” test.

Per Kurowski September 29, 2011 at 8:57 am

Yes! Basel bank regulations are un-American (and un-Western World) because by allowing banks to leverage more their capital when earning the risk-adjusted-interest-rate from those perceived as “not-risky” than when earning the same rate from those perceived as “risky”, regulators introduced a silly and unproductive risk-adverseness that is not compatible with a “land of the brave” or a Western World that has developed by taking risks.

Yes! Basel bank regulations are un-American (and un-Western World) because by allowing banks to leverage their capital immensely more when lending to their “solid” governments than when lending to their small businesses and entrepreneurs, regulators introduced stealth communism, absolutely not compatible with “the home of the free” or a Western World.

Here´s a video that explains a small part of the craziness of our bank regulations, and which discriminate so odiously against those perceived as “risky” but who never ever have caused any bank crisis… in an apolitical red and blue!

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