Financial reform fails

Simon Johnson pronounces the Financial Reform Bill ineffective as

essentially nothing in the entire legislation will reduce the potential for massive system risk as we head into the next credit cycle

As you were then. Business as usual for the bailed-out-too-big-to-fail-banks. Moral hazard and socialism for the rich, our well established, guiding principles. Ah well, maybe next time, when the big one bites, and sends us back to the dark ages, maybe then, we can start over from scratch.

The financial crisis of fall 2008 revealed serious dangers have developed in the heart of the world’s financial system. The Bush-Obama bailouts of 2008-09 confirmed that our biggest banks are “too big to fail” and the left, center, and right can agree with Gene Fama when he says: “too big to fail” is perverting activities and incentives.

This is not a leftist message, although you hear people on the left make the point. But people on the right also increasingly understand what is going on – there is excessive and abusive power at the heart of our financial system that completely distorts markets (and really amounts to a hidden, unfair and dangerous taxpayer subsidy).

This administration and this Congress had ample opportunity to confront this problem and at least wrestle hard with it. Some senators and representatives worked long and hard on precisely this issue. But the White House punted, repeatedly, and elected instead for a veneer of superficial tweaking. Welcome to the next global credit cycle – with too big to fail banks at center stage.