The difficulty of selling financial reform
Health-care reform felt complicated to many, but at least people were familiar with the basic concepts. Most of us have some experience with insurance, and doctors, and hospitals, and medical bills. Not so for financial reform, where there's going to be a terrible devil-in-the-details problem. Take, for instance, Paul Krugman's explanation of what reformers should be looking to achieve:
Transparency is part of the answer. Before the crisis, hardly anyone realized just how much risk the banks were taking on. More disclosure, especially with regard to complex financial derivatives, would clearly help.
Beyond that, an important aspect of reform should be new rules limiting bank leverage. I’ll be delving into proposed legislation in future columns, but here’s what I can say about the financial reform bill the House passed — with zero Republican votes — last month: Its limits on leverage look O.K. Not great, but O.K. It would, however, be all too easy for those rules to get weakened to the point where they wouldn’t do the job. A few tweaks in the fine print and banks would be free to play the same game all over again.
And reform really should take on the financial industry’s compensation practices. If Congress can’t legislate away the financial rewards for excessive risk-taking, it can at least try to tax them.
There will be things under the heading of "transparency" in the bill, and there will be sections on leverage and compensation and much else. The question is whether those sections are strong enough. But it's not like the public option, where the thing exists or it doesn't exist. It's not like covering the uninsured, which can be expressed as a simple percentile, and where there are no implications to covering 95 percent, aside from 5 percent aren't covered.
The difference for financial reform is all details, which is going to make it far harder to communicate to the populace. The few efforts I've seen have attempted to make a "public option" out of the consumer protection agency, but good as it would be to have a consumer protection agency, it's pretty peripheral to the effort to ensure that the next financial crisis either won't happen or won't matter.
Posted by: umesh409 | January 8, 2010 5:57 PM | Report abuse
Posted by: onewing1 | January 8, 2010 6:17 PM | Report abuse
Posted by: onewing1 | January 8, 2010 8:01 PM | Report abuse
Posted by: carbonneutral | January 9, 2010 12:18 AM | Report abuse
Posted by: usergoogol | January 9, 2010 1:04 PM | Report abuse
Posted by: NS12345 | January 11, 2010 9:32 AM | Report abuse
Posted by: roquelaure_79 | January 11, 2010 11:07 AM | Report abuse
The comments to this entry are closed.