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Spare the Rod and Spoil the Banker
50 Shades of Regulatory Grey
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  • Andrew Allison

    I couldn’t agree more with the thrust of this post, but would suggest that the bank’s estimate of $50 million is self-serving and probably grossly inflated. It’s unclear that the Feds are asking for anything which wouldn’t already be being monitored for internal use by the banks. Sadly, the banks just don’t want the Fed to know what they are up to.

    • rheddles

      You have not idea how poorly banks are run nor how expensive compliance is. Particularly when banks grow by merger instead of organically. What we need are progressive FDIC premiums.

  • Kevin

    My two suggestions:

    1. Sharp limitations on the size of banks or other financial institutions. A simple program of 100% taxation if all earnings over $X per year would eliminate the incentive towards super-sized financial firms.

    2. Managers should have personal liability for any situation in which a firm requires a government bailout larger than $X. If managers and former managers woukd be wiped in out the event their firm required an infusion if taxpayer money they would be a lot more cautious about taking large risks and woukd have a powerful incentive to undersand the risks they were taking. (Though this alone woukd probably be insufficient as human nature seems to make people overoptimistic when things are going well. We also woukd need to guard against gambling for resurrection.)

    • FriendlyGoat

      Wow. Even FriendlyGoat, the crazy liberal, has never recommended one hundred percent taxation of anything. But I gotta love your implication that one of the purposes of very high taxation is to discourage money from being “made” in ways (trading) which are counter-productive for the whole economy of society. This—–not government revenue—-is the most important purpose of progressive taxation with VERY high rates on VERY high incomes. Diminish, diminish, diminish the incentive for shenanigans.

      • Angel Martin

        so the purpose of high taxes is punitive ? they are a weapon to be used against the industries and groups those currently in power don’t like?


        this sort of thinking is why government in 3rd world countries is a winner-takes-all spoils system; where the laws are grossly biased against out of favour groups

        i guess that’s why ‘progressives” are looking for higher taxes on the oil industry and financial services, but are willing to maintain tax preferences for silicon valley and hollywood

        • FriendlyGoat

          Preventive, not punitive. Targeting excesses, not successes. Before they happen, not after they happen.

          • Angel Martin

            so you raise taxes on financial market trades to 95%, and they all move to London. how does that help anything,? it’s just punitive

          • FriendlyGoat

            I didn’t say 95%, You did. I also happen to believe that trading profits AND POTENTIAL EXPOSURES TO BE DUMPED ON THE PUBLIC are punishing everyone else. How do you counter that? (We need an answer, please, that does not imply that it isn’t happening, or that it doesn’t matter, or that traders have the world over such a barrel that no one can do anything, or even worse, that uncontrolled trading is somehow good for little people in their little jobs.)

          • Angel Martin

            the Fed can’t regulate them at all if they move to London as tax exiles.

            in any case, regulation won’t protect people from the next financial crisis, only from a repeat of the last one.

            financial innovation moves on, and gov’t lags far behind.

            if you are looking for gov’t to save you from the next financial crisis, you are going to be SOL

            you are going to have to protect yourself, sorry…

  • FriendlyGoat

    It really shouldn’t be that hard to regulate banks which do nothing but take deposits, make loans and provide cash flow services to businesses. If the large banks were limited to that function, we would not be writing volumes of regs to bury the smaller competitors in red tape. We have our banks engaged in too much trading of complicated instruments for their own accounts, and Andrew Allison correctly points out here that the banks have plenty of internal analysis that they wish to hide as proprietary. When we limit the banks to their proper function, there will not be any proprietary secrets from agencies such as FDIC or the Federal Reserve.

  • circleglider

    Actually, it’s Walter Russell Mead who’s never met a “smart and effective” regulation he didn’t like. And who wouldn’t? Maybe that’s why politicians have been promising smarter and more [cost] effective regulations for as long as they’ve been in existence.

    Electioneering aside, the real reason Professor Mead is so fond of regulations is because our modern administrative state is both a creation of and a synergistic partner with the academy. Neither could exist without the other. Together, they have both become wealthy, famous and powerful. This is a world where arcane complexity is a very desirable feature — at least for the insiders.

    Michael S. Greve has consistently offered a much more sober and accurate picture. If the incentives to maintain the status quo weren’t so powerful, Greve’s The Rise of Adversarial Corporatism might even shake Professor Mead into some honest introspection.

  • Angel Martin

    so the Fed is enforcing regulations that might have helped in the 2008 crisis, great

    the problem is that the financial sector has moved on, and the action (and risk) is now mostly outside the remit of the Fed

    for example, total loans in US dollars made by banks outside the US, is now more than half the size of US domestic bank loans.

    that is, there are $5 trillion of us dollar loans outside the US, made by banks who have no access to dollar funding at the Fed as a backstop

    and, the people they loaned that money to have had two gigantic shocks in the past 6 months – the dramatic increase in the value of the dollar against almost all other currencies; the plunge in the price of oil (and other commodities)

    how they deal with that risk is where the Fed should be concentrating its efforts.

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