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How Would Proposed Regulatory Reforms Have Worked in the Current Crisis?
This obvious question is going almost completely unasked in reporting on the financial reform. For example, if we had the large banks pay policy in place last fall, does anyone think that we would have imposed special assessments on Citigroup, Bank of America and the rest to cover the cost of bailouts of AIG and Lehman? And, if it wouldn't have helped in the last crisis, why does anyone think this approach will help in the next one?
Dean Baker
COMMENTS (5)
...why does anyone think this approach will help in the next one?
And... if it doesn't help in the next crisis, then we'll likely have another crisis because the moral hazard of "too big to fail", or "too complex to resolve", or whatever other meme will still be operable. I've got some concerns about the next two months... these banks STILL have all of this toxic crap on their balance sheets. I don't think the US can do a "Japan" decade with zombie banks, it will likely go up in flames.
Posted by: Doc at the Radar Station | October 28, 2009 7:55 AM
Dean Baker: "if we had the large banks pay policy in place last fall, does anyone think that we would have imposed special assessments on Citigroup, Bank of America and the rest to cover the cost of bailouts of AIG and Lehman?"
Of course we would have, and the government would have given them even more of my money to cover those assessments.
If the government handed me $2B and then levied a special assessment on me of $1B, would I complain?
Posted by: alex | October 28, 2009 11:53 AM
Doc, I think you underestimate the ability of myopic thinking to prevail.
I'm afraid the only way out is for this "Great depression" to morph into "Great depression II". Then the toxic crap will hit the fan. Let's hope the result is "New deal II", and not some authoritarian alternative.
Posted by: Joe K | October 28, 2009 1:05 PM
The special assessments in the proposed reform would be applied to financial companies with at least $10 billion in assets, of which there are hundreds. It wouldn't just apply to the money center banks, so framing the question as, "would we have made Citi and BofA pay for AIG and Lehman" is disengenuous.
Also, under the proposed reform the costs would be recouped over a 5-year period. Last time I checked, the AIG/banking bailouts were a little over one year old. So again, asking if we would have imposed assessments on Citi and BofA just one year out is irrelevant at best.
At least read the legislation before reflexively hating it.
Posted by: Economics of Contempt | October 29, 2009 11:34 AM
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