Same Game Different Rules

The Post-Recession Appetite for Risk and Regulation
This article points out the various questions currently being asked in regard to initiating new regulation of banks and the financial sector. It features various economists giving their take on what needs to be done to ensure that a meltdown like the current one doesn't happen again. I'm really not sure what the point of new regulation is. Any regulation on the banking system will have its moment in the sun and be played up as Washington and Obama "getting things done." But the financial system runs on taking risk, and whether they are called hedge funds or something else, they will find a way to get around any new laws and regulations. It has been going on for years with tax evasion, and when this crisis blows over the game will continue and their will be new winners and losers.


Landon said...

As stated many times in class the same recession does not usually happen twice. That being said though, the reason for that is that policies are put into place and things are changed to avoid the same thing from ever happening again. Agreed, that there will always be risk, usually the higher the risk the greater the return. However, things do have to be changed in effect to the current state of the economy. This will not avoid future recessions, nor is it 100% to avoid another just like this one; but we have to make changes to try and avoid it. This issue is hopefully going to happen in the private sector and will not have to involve fiscal policies to fix their mistakes in the future. I have hopes the “losers” will be private firms, and will be chalked up as growth and change.

Luke said...

I have made a post on a similar topic earlier, and I said that they need to tighten their belts to make some better decisions. Someone later commented that with them further tightening they will be hindering. If further restrictions are made for lending, it will only delay the healing process of the banking system. How are people suppose to start purchasing homes and cars if they can’t get loans to do so? They maybe shouldn’t created more hurdles for people to jump, but instead be a little more cautious.

anthony said...

This is certainly a problem for our country. A sad reality in a Capitalistic society is that the rich and educated always seem to find ways to get around the laws that bind the average American. Some regulations are still enforced though, like laws against having a monopoly. Even Microsoft with all their intellect and money could not escape that law.

Dr. Tufte said...

I think Carson has hit the nail on the head: the technical term for this is regulatory capture.

FWIW: there are also a lot of economists arguing that what we've seen wasn't a failure of capitalism, but a natural outgrowth of entrepreneurs trying to find ways to avoid regulations.

Also, you need to keep in mind that there has been essentially no deregulation in your lifetime. Pundits point to the repeal of the Glass-Steagall Act, but economists point out that 1) this was an alternative form of regulation rather than deregulation, and 2) absence of Glass-Steagall was used by some financial institutions last fall to escape what would have probably been bankruptcy under the old system.

The aphorism for Landon's point is "bad generals are always fighting the last war".

Anthony: if the rich are always able to get around the laws, how come so many of them lost so much money this past year?

Spencer said...

When considering bank regulation I agree that preventing all future financial disasters through regulation isn't really a realistic goal. The nature of the business and the risk and return will always lead to attempts to go around regulation, at the same time I don't think that regulation doesn't serve a purpose. For example home mortgage regulation would help limit unwise home loans and prevent the type of lending spree seen in the mid 2000s. I think that the knowledge that there will be future problems isn't a justifiable reason for failing to address current problems.