I just listened to NPR’s report about Paulson’s proposal to overhaul the way financial institutions are regulated. The report opened with a question to financial experts: “Does the plan do anything to fix the current financial crisis?” The experts responded with a unanimous “No.”
That shouldn’t surprise anyone, and it didn’t surprise Krugman:
…if financial players like Bear are going to receive the kind of rescue previously limited to deposit-taking banks, the implication seems obvious: they should be regulated like banks, too.
The Bush administration, however, has spent the last seven years trying to do away with government oversight of the financial industry. In fact, the new plan was originally conceived of as “promoting a competitive financial services sector leading the world and supporting continued economic innovation.” That’s banker-speak for getting rid of regulations that annoy big financial operators.
To reverse course now, and seek expanded regulation, the administration would have to back down on its free-market ideology — and it would also have to face up to the fact that it was wrong. And this administration never, ever, admits that it made a mistake.
Thus, in a draft of a speech to be delivered on Monday, Henry Paulson, the Treasury secretary, declares, “I do not believe it is fair or accurate to blame our regulatory structure for the current turmoil.”
And sure enough, according to the executive summary of the new administration plan, regulation will be limited to institutions that receive explicit federal guarantees — that is, institutions that are already regulated, and have not been the source of today’s problems. As for the rest, it blithely declares that “market discipline is the most effective tool to limit systemic risk.”
Market discipline is no contest for greed.
Greed crushed discipline. Paulson responded to the rout by calling a timeout. He’ll meet with the referees and tell them to call a tighter game, but the rules remain essentially the same, so greed will win again. It always does.
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