The new financial regulatory reform

Kevin Drum is unhappy.  Paul Krugman is critical.  My mental model of Simon Johnson is even more critical.  Need I cite Yves Smith?  Felix Salmon is confused.

Is there anything to say, other than rehashing old debates about regulation and blame?

As the NYT notes:

A key element in the plan will be creating an independent Consumer
Financial Protection Agency to write and enforce rules on fair lending
and other matters.

Maybe that's where one chance to get tough lies.  We are creating an agency which will have plenty of incentive to limit risk by installing plain vanilla products, and yet it will have little stake in preserving economic growth. 

It is possible that the real action is in the future flow of financial innovation rather than how we treat the stock of extant financial innovation (recall Arnold Kling's chess game analogy).  I suspect the Obama plan is tougher on the former than on the latter.

I would say we still don't know what is actually going to be done.

Addendum: Here are more details, I believe they support the last sentence of this post.  Matt Yglesias offers good comments.


You are an excellent blogger. But, when you say things like: "recall Arnold Kling's chess game analogy," you should provide a link. Most of us don't eat lunch with Arnold Kling.

What will happen

Financial innovation and transactions will move to other countries.

American firms will be in CYA mode.

Powerful political leaders will have more control then stockholders.

The system will be gamed (by people like Rahm Emanuel who have the political muscle to get things done)

What would Milton Friedman say about concentrating so much power with the Federal Reserve?

When was it decided that regulatory authorities and their mandates do not have to be created by Congress? Did I miss that memo?

We're screwed!

Very good post by Robert Bell above. Simple, to the point, a model for blog posts.

A very funny post by Allan. The government will make thinks simpler. Class action lawsuits aren't a major headache, etc. Funny stuff. BTW why is it so hard to figure out the costs in your employers 401 K? Because government regulators and the investment industry work together to hide the true costs. But of course this time everything will work different.

These changes are just a full employment bill for politically connected individuals to make millions in the private sector, after they leave the public sector.

I do like Allan's idea for two America's, one for the idiots and the other for the rest of us. They should sign a contract with the government "I'm a dumbass, protect me." Better than one America where we all get pushed into that "social contract" by force.


Call me an idiot if you will, given my law degree. But I would prefer simplicity.

I cannot negotiate a number of things. I cannot negotiate terms of my credit cards. I cannot negotiate most of the terms of my mortgage. I cannot negotiate most of the terms of my cell phone agreement. Indeed, with most of my recurring bills, terms of use are dictated to me.

On the other hand, I don't want to spend days dickering over whether my credit card payment is due on May 20 at noon or May 21 at 9 am. I would rather just have something simple and easy to go by.

When I sign a mortgage, that should either be simplified, or I should have the right to negotiate. The current market does not provide these options (most likely because most people would not even know what to negotiate, even if they had the opportunity).

As for the monetary amounts, when you get to a large enough amount both parties have the wherewithal to hire specialized help, i.e., an attorney. So, the laws would only apply to poor idiots.

Finally, I don't think that without government contracts would be simpler. I think that without government big business would run roughshod over individual consumers.

A key element in the plan will be creating an independent Consumer Financial Protection Agency to write and enforce rules on fair lending and other matters [like the CRA] - because God Knows that the surest way out of this financial crisis is to make sure that banks lend more money to poor people.

We need to be careful that in all these "fixes" for the economy that our tax system doesn't go completely out of control.

This idea of raising taxes as a catch-all solution is ridiculous. The U.S. Chamber of Commerce has done great work to help keep taxes low and simple. They've been assessing our country's strengths and weaknesses and outlining the public policies we must pursue to succeed in the world economy. I was glad I could help take action on their web site (here) with several petitions focusing on the economy and labor reform.

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