I suspect posts like mine are being echoed all over the blogosphere, tonight — that certainly seems to be the case, on the opinion pages of the Wall Street Journal — look here:
. . . .When Japan was mired in economic crisis, the U.S. urged it to take decisive action to deal with its ailing banks. Japan didn’t follow the advice and the crisis dragged on for years. Now, it is the U.S. that is mired in crisis and facing the prospect of swallowing the bitter medicine it once proffered. . . .
Indeed. It seems Floyd Norris, over at the New York Times Finance blog, agrees, as well:
. . . .[Lessons:]
1. The capital rules were far too lax, and they still are. They may have made sense if you assumed perfectly liquid and smoothly functioning markets, but that is like saying a roof does not leak when it is sunny and mild.
2. The end of the rules separating commercial banks from investment banks — Gramm Leach Bliley — is one reason the government is much more deeply involved now. Bank of America and J.P. Morgan Chase, the fire-sale buyers of Merrill and Bear, have government guaranteed deposits. That amounts to a subsidy, and when times get tough the subsidized firm has a big advantage over the unsubsidized one. To keep the others going, the Fed now will lend them money secured by almost anything they can find, including common stocks.
3. Those who were complaining, only months ago, that excessive regulation was making American markets uncompetitive, had it exactly wrong. It was a lack of regulation of the shadow financial system and its players that allowed this to happen. The regulators might not have gotten it right if they had tried to put limits on leverage, or assure that it was clear what risks were being taken, in the world of derivatives and securitizations. But deciding not to even try, and assuming that risks traded secretly would somehow end up in the hands of those most able to bear them, reflected ideology, not analysis. . . .
Now, I’ll be back firmly, and solidly, on topic.
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