Tuesday, June 23, 2009
Caroline Baum takes a look at the Obama administration's proposed reforms for regulating banks and other financial institutions but comes away wanting.
The Obama administration’s architects went back to the drawing board and last week produced a blueprint for regulating financial institutions. One controversial aspect of the plan is the creation of a systemic risk regulator, the Federal Reserve, with the power to oversee any financial firm, not just a bank holding company, “whose combination of size, leverage and interconnectedness could pose a threat to financial stability if it failed.”There's much more over at Bloomberg including this quip from economist Arnold Kling "The holders of credit risk were regulated institutions, especially Fannie Mae, Freddie Mac and the banks. They took on excessive risks right under the noses of the regulators."
In other words, the same folks who missed, or did nothing to prevent, the worst crisis since the Great Depression will definitely, absolutely, positively be able to anticipate the next one. Uh-huh.
And former Treasury Secretary Paul O'Neill offers the common sense approach of requiring home buyers to once again make downpayments of 20 percent arguing, "Why not ensure that housing finance never gets us into trouble again?"
Mr. O'Neill's suggestion is a much too sensible approach to be sure, and one that would completely destroy whatever remnants are left of our once-great asset-based economy.