If there is one thing the American people disliked about how their government reacted to the financial crisis, it was the bailouts of large financial firms. Obama administration officials saw this clearly, so in structuring and describing the Dodd-Frank Act — the financial reform law Congress passed in 2010 — they were careful to leave room for the claim that the act would make bailouts a thing of the past. The one thing the government couldn’t do, administration officials said, was use taxpayers’ funds to keep large financial institutions from failing.
Peter Wallison | All Articles
The excuses for President Obama’s shockingly weak performance in last week’s presidential debate are taxing the imaginations of the left. We’re told President Obama doesn’t like confrontations because he wants to be president of all the people (Paul Krugman); he doesn’t watch enough MSNBC (Chris Matthews); he’s a great thinker but a so-so debater (David Remnick); he may actually need that teleprompter (Bill Maher); and of course everyone’s all-time favorite: it was the altitude (Al Gore). On the right, the argument has been that the media has coddled Obama — so much so that he is unable to respond effectively to the challenges presented by Romney.
The JP Morgan Chase (JPMC) story — in which the bank lost $2 billion on a failed effort to hedge a $400 billion portfolio of assets — has morphed into a Jamie Dimon story, complete with gossip about his private comments at a dinner party. The story is following the usual pattern: regulatory agencies piling on; inaccurate reporting about what the law requires; reporters consulting “experts” with political motivations who don’t know what they’re talking about; politicization of the story so that it becomes relevant to a public issue — in this case the Volcker rule; and then the focus on whether a well-known and respected person will be brought down by the controversy. It’s depressing to watch, but it is missing the point that the Volcker rule would not have prevented the loss and is probably unworkable.
The Huntsman plan for regulatory reform is a good effort, but it fails to come close to accomplishing the one major goal that it highlights in its summary description — “ending” too-big-to-fail (TBTF). To do this, the plan proposes a “hard cap” on bank size and would impose fees, higher deposit insurance premiums and higher capital requirements. Of these items, only size matters in the determination of whether a bank is TBTF; the fees, etc. are ways to cause a bank to reduce its size or to compensate for the risks it creates, but do not have any effect on whether it is TBTF.