Problems with Financial Sector Reform Proposals

I have gone through the President’s financial sector regulatory reform package. It is a huge bureaucratic overreach that will prove ineffective and too costly.

For example, the new systemic risk regulator is an interagency committee, which already informally exists, and the Fed. We all knew about the SIVs and what they were doing before the crisis but no one saw a problem. It was not the lack of an agency or committee but foresight that caused us to let them go too far.

Similarly, most of what the consumer protection agency would accomplish is already in the works. The last thing the banks need is another dimension of regulation. We do need for the agencies like the Fed and FTC to do their jobs better and that is already happening. Credit card contracts and mortgage writing are being reformed.

The Morass being proposed is an example of blind faith in government regulation, much as those who want few strings have blind faith in market discipline. The trick is to get regulation right, not mound it like whip cream on a banana split.

Comments

[Leftfield:]

Thanks for doing the heavy lifting and reading the stuff. We're here because of innumerable overpaid suits not doing the jobs their record pay scales call for. That's where growth has been in incomes in this country. Now we have more requirements for suits, set up by suits with no common sense or worse, and failure is inevitable.
It's all a game. If there are enough voters with sense, this could end eventually. No sign of that yet.

Jun 17 11:10 AM

[TinyTim:]

More govt regulation just adds to the lack of transparency. Eventually, only the most highly trained specialists (read lawyers) will be able to decipher the regs. It's fairly obvious that AIG set itself up as a savings bank to fall under the purvue of the OTS, one of the lamest agencies out there and proposed for demise. The complexity of regulations is self defeating.
The best example is the income tax code.

Jun 18 02:36 PM