are hinting that financial regulatory reform could be the next big
legislative push following the passage of health care reform. We've
covered the advice for how to prevent the next
. Now that reform is finally ready
to move from the theoretical realm of economists to the excruciatingly practical world
of legislators, what's changed? Here's the insight for how to handle the
banks, how to handle the bankers, and how to deal with wary
- 'Too Big to Fail' Is a Red Herring The New
York Times' Paul Krugman warns, "Breaking
up big banks wouldn’t really solve our problems, because it’s perfectly
possible to have a financial crisis that mainly takes the form of a run
on smaller institutions. In fact, that’s precisely what happened in the
1930s." Instead of fretting about bank size, legislation should "update
and extend old-fashioned bank regulation."
- Don't Settle for Current Bills Mother Jones' Kevin Drum is hopeless.
"There's pretty much universal agreement that reining in leverage
[available to banks] is the single most important thing we can do to
moderate future financial crises," he writes, but laments that neither
the current House or Senate bill adequately address this problem. "Color me
pessimistic that this is likely to turn out well."
Rely on Republicans Talking Points Memo's Brien Beutler can't believe he has to remind Democrats of
this. "You'd think that after watching the
four month health care fight turn
into a year-long game of legislative Calvinball, Democrats wouldn't take
anything for granted. But when it comes to financial regulatory reform,
they're downright assured: they're going to get a bill, and it's not
going to require any concessions to the GOP. "
a Firm Leverage Ratio Kansas City Fed Chief Thomas Hoenig insists that
legislation detail a very specific ceiling of the allowable
leverage-to-assets ratio. He suggests 15. "I think that would do a lot
to become counter-cyclical. In other words, when the boom time comes,
people and banks tend to say: 'Let's lend more against our capital base,
and things are good, we always get paid back.' And it becomes
pro-cyclical. [But] when you have a clear rule that says if you want to
lend more once you're at this maximum, you have to raise proportionally
more capital, then it comes counter-cyclical and much healthier for the
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