Monday, May 4, 2009

Squam Lake Ecomomists Call for More Regulation

It's as ugly as it sounds.

A group of economists operating under the umbrella of the Council on Foreign Relations and calling themselves the, Squam Lake Working Group on Financial Regulation, has called for a systemic regulator for financial markets. They write:

Financial regulations in almost all countries are designed to ensure the soundness of individual institutions, principally commercial banks, against the risk of loss on their assets. This focus on individual firms ignores critical interactions between institutions and can also cause regulators to overlook important changes in the overall financial system. The solution: One regulatory organization in each country should be responsible for overseeing the health and stability of the overall financial system. This Working Paper, the fourth in the Squam Lake Working Group series distributed by the Center for Geoeconomic Studies, argues that the central bank should be charged with this important new responsibility.

Of course, the group does not address the problem that central banks may not recognize a future bubble, given that they entirely missed past bubbles.

They also fail to address the problem of regulatory capture, where bad guys circle newly created points of government power that result in regulations used to the benefit those near the regulators, e.g., consider Bernie Madoff, Goldman Sachs.

And, there is no hint by this group that central bank money mnaipulations are at the core of widespresd cyclical business failures.

For the record, the economists calling for this global regulatory albatross are:

Andrew B. Bernard, Dartmouth College
John Y. Campbell, Harvard University
John H. Cochrane, University of Chicago
Douglas W. Diamond, University of Chicago
Darrell Duffie, Stanford University
Kenneth R. French, Dartmouth College
Anil K Kashyap, University of Chicago
Frederic Mishkin, Columbia University
Raghuram G. Rajan, University of Chicago
David S. Scharfstein, Harvard University
Robert J. Shiller, Yale University
Hyun Song Shin, Princeton University
Matthew J. Slaughter, Adjunct Senior Fellow for Business and Globalization
René M. Stulz, Ohio State Universityl

1 comment:

  1. Maybe we can call them "we promise not to miss the next bubble" school of economics.