September 23, 2009
Political Economy and Regulatory Reform
Posted by David Zaring

There's actually a lot of developments on financial regulation, even though you'd think that it would be health care blocking the sun, and maybe climate change taking care of the moon.  On the one hand, the administration's proposals are veering towards the even more half-hearted, giving up on the "plain vanilla" offering that the proposed FPCA would require of banks.  Here's the Geithner speech.  It's pretty good, but it hews to the Obama-style "here are our principles, now over to you, Congress ... though if you'd like, we've got some specific suggestions as well."

Half-hearted is a trade, right?  We'll sacrifice financial reform for other goals?  And anyway, we can't get major, Simon-Johnson-style reform done, because of the opposition of the already extant agencies and the captured Hill?

Well maybe, but then you apparently have two players talking tough about financial regulation, on the assumption that something will happen, and they need to midwife it, or be swept aside.  The Fed is proposing to by regulation be able to reverse any bank compensation package.  That's any.  And Chris Dodd is returning to the idea of the super-regulator.

Okay, but the Fed is under pressure on the Hill, what with this audit threat, and Dodd is looking captured, so they both need to show some toughness right?

Political economy stories are quite confusing.  But the real regulatory entrepreneur probably seizes the moment when the most people are the most far along in their posturing, in an effort to hold them to it.  What we need is a McNollGast model for when that happens.

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