Wednesday, January 20, 2010

Against Punitive Populism

. Wednesday, January 20, 2010

EoC restates the obvious:

It's true that the idea that "what's good for Wall Street is good for America" has been disproved, but that does NOT prove the opposite—that is, it doesn't prove that "what's bad for Wall Street is good for America." It's frightening how many commentators fail to grasp this distinction. ...

Cutting into Wall Street's profit margins shouldn't be an explicit goal of financial reform. In other words, we shouldn't look for where the Street has the highest profit margins, and then say, "OK, now how can we cut into those profits?" In most instances, enacting sensible regulation based on an objective weighing of the evidence will lower Wall Street's profit margins anyway. But the fact that the Street is going to profit from a particular regulatory change doesn't necessarily make the regulatory change ineffective, or insufficiently "tough on Wall Street." One argument I hear a lot on OTC derivatives is that we need to push them onto exchanges rather than clearinghouses because Wall Street would still make fat profits if they just went through clearinghouses. That's not a coherent argument for why public policy should require exchange-trading for standardized OTC derivatives.

I'd only quibble with the very beginning: what's good for Wall Street is good for America, if by "good for Wall Street" you mean finding a system of regulation that protects against systemic risk while still allowing financial firms to provide valued services to their clients. That would be good for Wall Street, America, and the rest of the world to boot. That should be the goal of policy. And if firms make a lot of money under such a system, and if they use those profits to pay out large bonuses, then we should be happy that they're providing so much value to the economy.

By the way, this sentiment can be generalized to all corporations.


Against Punitive Populism
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