Drum Debates Drum

Robert Waldmann

Kevin Drum argues that it is a very bad thing that financial firms can pick their regulator

For what it’s worth, I’d say that having a single bank regulator is long overdue. The current structure not only doesn’t make sense, but allows banks to shop around for the most lenient regulator they can find, prompting a race to the regulatory bottom.

In the post immediately below, Drum agrees with Bill Clinton that the Gramm Leach Bliley act was no big deal.

In an interview with Peter Baker, Bill Clinton says that although he regrets not regulating derivatives more strictly, he doesn’t think that repealing the Glass-Steagall Act and allowing commercial banks to merge with investment banks was a big cause of our financial meltdown:

[snip Bill]

I think this is roughly right

huh ? I amplify after the jump.

There is a certain tension, almost cognitive dissonance, between this post and the post below. In the post below, you agree with Bill Clinton that the repeal of Glass-Steagal was no biggie. Here you argue that it is terrible to have competing regulators who are financed by fees paid by regulated firms inevitably causing a race to the bottom.

How did we ever get such an absurd regulatory system which seems to have been conciously designed to prevent actual regulation ? That would be by the repeal of Glass Steagal. The problem isn’t that the barriers between say financial services companies and insurance companies were removed. The problem is that the barriers between the regulators weren’t removed.

Firms could switch from sector to sector and their regulator couldn’t follow them. Back under Glass Steagal a firm couldn’t choose its regulator because it wasn’t allowed into the business of the desired regulator.

To put it another way, the problem with the bill was not that it allowed AIG to set up AIG-Financial products, but that it allowed AIG-FP to find a way to be regulated by the office of thrift supervision.

Oh and I don’t doubt that the regulatory system left by the repeal of Glass Steagal wasn’t deliberately designed to allow a race to the bottom and prevent regulation insofar as that was possible. The chief architect was Phil Gramm who has made it very very clear that he thinks the main problem with regulation is that it exists.

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