The Rush to Re-Regulate
Economists' Voice, July 2008
Reg-Markets Center Related Publication 08-06
6 Pages Posted: 28 Jul 2008 Last revised: 23 Oct 2008
Date Written: July 25, 2008
With Wall Street still reeling from the mortgage meltdown, the Federal Reserve now seemingly committed to rescuing big investment banks "too complex to fail," and the U.S. Treasury proposing a top-to-bottom reorganization of financial regulation, pieties about the virtues of unfettered markets now seem hollow. Tighter oversight of financial markets, reversing a trend that began in the 1970s with the end of fixed commissions on the U.S. stock exchanges, is thus almost certainly in the cards.
However, a little perspective is in order: re-regulation could have unintended consequences, bolstering the power of well-organized interest groups, reducing access to capital and undermining America's competitive position in the huge and growing global market for financial services. Hence the wisdom in pausing to remember both how easy it is to fall into bad regulation, and how hard it is to dig out.
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