There's a problem with the "go back in time" policy proposals. If the banks beat the regulations we had in place before, what makes us think they won't beat them again?
This is why Taleb is proposing a simpler solution - it might be hard to get around.
I am skeptical of all proposals, but I think it's important to understand that going back to the previous set of regs might not work since the banks busted through those.
Banks did not beat the regulation directly. They spent ~50 years chipping away until the regulations changed then another ~15 before things got really crazy. Personally if we can put the next crash off for ~65+ years before the next crash I think we will have done a great job.
For the most part the banks didn't find loopholes in the regs, they bribed the legislature to repeal them and to cut the budgets of the regulatory agencies.
So you think that, for instance, cherry-picking something specific you don't like and trying to make it a general counterargument to something many people do like, is a good idea?
I suspect many people who want to "simply re-regulate financial institutions the way [the US] did during the period from the 1930s through the 1990s" are not fully aware of what those regulations entailed, or why they were repealed. The example I cited might be a motivating factor for such people to get more informed before they decide what they "like". I would further add that counting "like"s is probably not the best way to figure out how to reduce systematic risk in the financial system.
"are not fully aware of what those regulations entailed, or why they were repealed. "
But they are fully aware that the system worked pretty well, and was pretty stable, for decades, although it wasn't quite as profitable for the financial industry.
Although RyanMcGreal didn't refer specifically to Glass-Steagall, it's a good bet that "re-regulating" (i.e. re-introducing measures from that law) might be a bad idea in several cases, Regulation Q being one of them.
Megan McArdle is a terrible journalist. I would suggest double-checking all of her claims.
For instance, she recently wrote that wealth inequality was probably worse in the 90s than it is now. In fact, it's now much worse than it was then. She didn't bother to check her own assumption.
Unfortunately, long experience has shown me that it's not worth trusting McArdle unless you have all of her sources right out in front of you; I believe the polite way to put it is that she "massages the facts" a bit :)
I think Regulation Q is a vary good idea. 'Checking' accounts that pay significant amounts of interest have long been the source of instability in the banking sector. And with FDIC inshurance covering the depositor's risks there is a significant moral hazard for banks to do ever more shady things. Just think about it for a second as a depositor your covered by FDIC and some bank is offering you 6% ROI why do any sort of due diligence just take it and let the tax payer bail you out if anything bad happens. And now your a competitor, you know that it's risky to compete but your also losing all your customers so you might as well take stupid risks vs just plain going out of business.
I don't think your story holds up. Checking accounts pay nowhere near 6% interest. Mine is currently paying 0.10%. Savings accounts are FDIC insured and Regulation Q did not forbid them to pay interest, it was just harder to get your money out. I don't think any professional economist believes that interest on demand deposit accounts has ever caused a crisis or been a significant cause of systemic risk. It was an anti-consumer regulation, plain and simple.
Actually, if we move all our money from big banks to credit unions and small local banks, the end result will be the same as re-introducing Glass-Steagall act.
> Another similarity will be the lack of online banking. Many credit unions and small banks lack the scale to support that...
Huh? There are folks who sell the relevant software. My little credit union has had this stuff for years.
Yes, including bill pay and so on. I got it before big banks started advertising similar services.
I haven't seen any mention of by-phone money transfer or check cashing yet, but since I don't have a smart phone, that's may be me.
> See also: ATM access.
Credit unions banded together to solve that problem years ago. Some also pay fees for "out of network" use. (Non-banks like Schwab take that approach.)
I don't know if you've kept up with where things are at with credit unions, but my credit union's online banking is quite nice, and there's a credit union co-op network that means that ATM's which are fee-free and can take deposits are never very far away.
It would be nice to have more physical branches (maybe that's another thing a co-op network of credit unions could handle), but really, switching to a credit union was way easier than I had ever imagined.
Majority of credit unions outsource their online banking to companies like orcc. My credit union has better online banking than Wells Fargo (not hard to beat).
The ATM access do require small changes in behavior (i.e., don't forget to get cash back in Safeway), but it is quite possible to achieve.
I do like this idea, but I'm a bit skeptical that a relic of the 1930s would work in our modern economy. Thus, I suspect the answer is a bit more complex than "Bring back Glass-Steagall".
I think the economics is pretty timeless, actually. A lot of the regulation was aimed at preventing catastrophic bank failures, before the idea of Too Big To Fail was invented. Glass-Steagall contains the idea that a commercial bank, which gets major regulatory freebies by virtue of being a commercial bank (FDIC, Fed access, &c), shouldn't have access to unfettered financial markets. And so on.
Go and read J.K. Galbraith's The Great Crash: 1929. It's a short book, an easy read, and quite informative. Particularly interesting is his examination of causes and ramifications. If you buy a recent edition, these have been updated through the 1960s and 70s, with a foreward by his son in 2009 (the book was first published in 1955).
Though the situation of the 2008-2011+ crash/depression isn't an exact reflection of 1929, there are very strong rhymes.
