Poor Regulation, Not Deregulation Cause of Financial Distress

This is Columbia University Business School professor Charles Calomiris, writing in Saturday's Wall Street Journal:

Financial deregulation for the past three decades consisted of the removal of deposit interest-rate ceilings, the relaxation of branching powers, and allowing commercial banks to enter underwriting and insurance and other financial activities….

The ability for commercial and investment banks to merge….allowed Bear Stearns and Merrill Lynch to be acquired by J.P. Morgan Chase and Bank of America, and allowed Goldman Sachs and Morgan Stanley to convert to bank holding companies to help shore up their positions during the mid-September bear runs on their stocks….

Does Glenn Hubbard still want Ben Bernanke's job?

Subprime lending, securitization and dealing in swaps were all activities that banks and other financial institutions have had the ability to engage in all along. There is no connection between any of these and deregulation….

Severe financial crises have occurred in many countries — roughly 100 over the past 30 years — and even on a global scale many times before. About 2,000 years ago, Tiberius solved an early global financial crisis by making huge zero-interest loans to Roman banks. Sound familiar?

Full text here and the Journal's own editorial on the same subject is here.

Comments (3)

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  1. Terrel Johns says:


    That’s a great video! The singer even looks like Glenn Hubbard.

  2. Greg says:

    What are you talking about Terrel? That is Glenn.

  3. John Goodman says:

    The myths:

    1. Bank lending to nonfinancial corporations and individuals has declined sharply.
    2. Interbank lending is essentially nonexistent.
    3. Commercial paper issuance by nonfinancial corporations has declined sharply and rates have risen to unprecedented levels.
    4. Banks play a large role in channeling funds from savers to borrowers.

    Each of these myths is refuted by widely available financial data from the Federal Reserve. It's a short paper, read the whole thing. [link]

    Hat tip to Tyler Cowen.