Thomas Friedman (of whom I'm not especially a big fan) bluntly makes some recommendations on banking in "Did You Hear the One About the Bankers?":
1) If a bank is too big to fail, it is too big and needs to be broken up. We can’t risk another trillion-dollar bailout. 2) If your bank’s deposits are federally insured by U.S. taxpayers, you can’t do any proprietary trading with those deposits — period. 3) Derivatives have to be traded on transparent exchanges where we can see if another A.I.G. is building up enormous risk. 4) Finally, an idea from the blogosphere: U.S. congressmen should have to dress like Nascar drivers and wear the logos of all the banks, investment banks, insurance companies and real estate firms that they’re taking money from.These are basic recommendations. OK, maybe #4 is a bit extreme - but that's the blogosphere:). Still, you don't need a PhD to grasp the thrust of Friedman's recommendations, but that's the case for most sensible policy. For example, it doesn't take an Einstein to understand that there should be a law that you can't buy a house without at least a 15% down payment - period. But nobody stood up and said the crazy mortgages leading up to the housing crisis were the stuff of a global meltdown. In fact, one theory says that those outside of politics who recognize the ramifications exploit them by their trading prowess. This was evidenced by the fortunes made by those who analyzed mortgage data and shorted securities bogusly rated AAA when they were comprised of obvious (except I guess to the rating agencies) toxic debt.
But it is also the case that sensible policy many times pulls the gravy bowl away from special interests who profit at the expense of the public. I believe the "Occupy Wall Street" movement and the Herman Cain ascendency are telling politicians they better get this if they want to get elected. In fact, we may have reached the point where those in power need to step on some "third rails".
If we are going to talk about transparency, #4 is the best! Reminds me of the republican congressman who apologized to BP after the spill even before ascertaining the facts. I bet his body is tattooed with BP logos!ReplyDelete
re: MC I think maybe #4 has the least chance of seeing the light of day although it does point up the fact that the blogosphere probably would be best at solving some of our major problems!ReplyDelete
I love your housing analogy. I see that you allow no exceptions for the 15% down rule. People would complain and say that such a policy would put housing out of reach for many Americans, particularly groups that are somewhat disenfranchised. The other side of it though is that you would be effectively protecting a lot of people from the pain of being house poor. I'm not saying it's foolproof, but it would certainly decrease the odds of people getting into homes that their income couldn't support.ReplyDelete
re Shawn: I look at it the same way as I look at getting a driver's license. Requiring people to pass a written and an in car driving test prevents some people from getting a license. That is for the good of everybody.ReplyDelete