Jon Ward linked to this Ezra Klein interview with Sen. Bob Corker in his piece yesterday, but there’s one exchange in particular that I think is worth highlighting, because it perfectly sums up a core problem with regulation in general (bolded is Klein, regular is Corker):
You’ve also mentioned your discomfort with giving the Federal Reserve and the FDIC much autonomy. That makes sense to me given the size of the regulatory failure in the run-up to the crisis. But on one of the most important issues, capital requirements, pretty much all the power lies with the Federal Reserve, and it’s used at their discretion. Have you given thought to including hard caps, like the 15:1 cap in the Frank bill?
I’m probably hurting myself in negotiating by telling you this, but I’m concerned about giving so much freedom to regulators. There’s a lot of talent at the organizations and they have very sophisticated ways of looking at these questions. But what you said is exactly right. Every single time, the same thing happens: As the economy gets better and better and better, the regulators get looser and looser and looser, and then we crash and they overreact and clamp down and begin overcriticizing, which is why we’re seeing a contraction of credit in places where it shouldn’t be occurring. So I’m not sure we don’t need to be more specific in capital and underwriting. I know the demographics in our country are different than in Canada, but over there, you put 15 percent down on a home. You just do. And they didn’t go through these problems. I’m not saying that’s what they should do, but in our office here, we’re thinking about whether we should be giving up so much flexibility