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June 19, 2009

Financial regulation in America: A British view.

See an opinion piece entitled "Better broth, still too many cooks" in this week's The Economist. It is a critique of the Obama administration's plans (and new white paper) for U.S. financial reform. The article hits a high note in the beginning: a portrait of a vast, clumsy, and myopic animal that is our current system of financial regulation:

There is both too much of it and too little. Multiple federal agencies oversee the financial system: five for banks alone, and one each for securities, derivatives and the government-sponsored mortgage agencies. They share these duties with at least 50 state banking regulators and other state and federal consumer-protection agencies.

Yet all these regulators failed to anticipate and prevent the worst financial crisis since the Depression, because risk-taking flourished in the cracks between them. Toxic subprime mortgages were peddled by lenders with little federal oversight and shoved into off-balance-sheet vehicles. The greatest leverage accumulated in firms that avoided the capital requirements of banks.

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TriStar Pictures, Inc.

Posted by JD Hull at June 19, 2009 05:31 PM

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