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FinReg and the US Financial System

FinReg and the US Financial System

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FinReg and the US Financial System

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Presentation Transcript

  1. FinReg and the US Financial System Economics 437

  2. Financial Regulation • The “Bailout” Fund • Derivatives restrictions • Separate derivatives trading from investment banking • Make derivates trade through exchanges • Unlimited power of FDIC to guarantee depositors (all depositors) • Unlimited power to the FED to use garbage collateral • The CFPB (a Fed remake of the CFPA) • Proxy access for large shareholders

  3. What Caused the Financial Crisis in the First Place? • Government housing policy • Tax deductions for mortgage interest • Tax free capital gains on home sales • Fannie and Freddie • “Too Big to Fail” policy • Removes market discipline for bond holders and, in some cases (Citigroup, AIG) for equity holders • Provides incentives to speculate

  4. What Did Not Cause the Crisis • The Curious Case of Goldman Sachs • Greed and corruption on Wall Street • Predatory lending • An absence of regulation (or regulatory enforcement) • The rating agencies

  5. So what does FinReg fix? • Doesn’t change govt housing policy • Creates permanent “too big to fail policy” for virtually all financial institutions (at taxpayer expense) • What bad things does it do • Greatly restricts risk controls for investment banks • Dramatically reduces available credit to lower and middle income Americans

  6. End