Let’s face it: Financial reform is a hard issue to follow. It’s not like health reform, which was fairly straightforward once you cut through the nonsense. Reasonable people can and do disagree about exactly what we should do to avert another banking crisis.Krugman points out it was the failure of many small banks in the 1930s that led to the our financial crisis and the Great Depression. So in this case, size really doesn't matter!
So here’s a brief guide to the debate — and an explanation of my own position.
Leave on one side those who don’t really want any reform at all, a group that includes most Republican members of Congress. Whatever such people may say, they will always find reasons to say no to any actual proposal to rein in runaway bankers.
Even among those who really do want reform, however, there’s a major debate about what’s really essential. One side — exemplified by Paul Volcker, the redoubtable former Federal Reserve chairman — sees limiting the size and scope of the biggest banks as the core issue in reform. The other side — a group that includes yours truly — disagrees, and argues that the important thing is to regulate what banks do, not how big they get.
Regulation is what matters. The message big bankers now have is that they can virtually do whatever they want, because the government will bail them out.
This rescue was necessary, but it put taxpayers on the hook for potentially large losses. And it also established a dangerous precedent: big financial institutions, we now know, will be bailed out in times of crisis. And this, it’s argued, will encourage even riskier behavior in the future, since executives at big banks will know that it’s heads they win, tails taxpayers lose.Could someone please explain to me why Paul Krugman isn't running the show?