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May 3, 2010

NYT: Financial Regulation Bill May Be Misguided

Topics: Political News and commentaries

The NYT has finally talked to some financial experts who have reviewed the Dodd bill, and are now saying what Senate Republicans have been saying all along - the bill is misguided, doesn't even address the right problems, and leaves the financial system vulnerable to another major crisis:

As Democrats close in on their goal of overhauling the nation's financial regulations, several prominent experts say that the legislation does not even address the right problems, leaving the financial system vulnerable to another major crisis.

Some point to specific issues left largely untouched, like the instability of capital markets that provide money for lenders, or the government's role in the housing market, including the future of the housing finance companies Fannie Mae and Freddie Mac.

Others simply argue that it is premature to pass sweeping legislation while so much about the crisis remains unclear and so many inquiries are in progress.

"Until we understand what the causes were, we may be implementing ineffective and even counterproductive reforms," said Andrew W. Lo, a finance professor at the Massachusetts Institute of Technology. "I understand the need for action. I understand the need for something to be done. But what I expect from political leaders is for them to demonstrate leadership in telling the public that we need to proceed about this in a much more deliberate and rational and thoughtful way."

Senate Republicans echoed some of these concerns as they delayed debate on the legislation last week. Democrats agree that significant issues remain to be addressed. But they say that the government must press forward in responding to the problems that already are clear.

In other words, Barack Obama and the Congressional Democrats clearly have it wrong and the Republicans have been right all along - rushing the bill through passage is likely to cause far more problems than it fixes, if any. And this is especially the case when Fannie and Freddie remain untouched.

As Mary Katharine Hamm points out, since the New York Times is now putting the concerns of Senate Republicans and "a diverse group of [expert] critics" in the same paragraph, maybe that means Republicans should have stuck with opposition to this vision of reform.

Posted by Richard at May 3, 2010 11:28 AM



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