Search the Lounge


« Adaptive Regulation and Channeling Politics | Main | Dean Emily Spieler Stepping Down At Northeastern Law »

September 13, 2011


Feed You can follow this conversation by subscribing to the comment feed for this post.

Kim Krawiec

"Where is the romance?"
love that one.
You and Brett have been on a roll with titles today.

Cristie Ford

Erik, I think there's all kinds of romance around these issues, and I'm not just talking about our little group's esoteric tastes. Thing is, the romance is in the Tea Party.

Your second post did an extraordinary job of identifying all the ways in which the path forward for financial institutions regulation is fraught with peril. But some of them would be significantly changed, defanged even, in a different political environment. I know that might sound flaky. On the other hand, the political calculations were not always as they are now. Anyone who's been in an institution that has undergone a cultural shift recognizes the reality of it, even if proactively trying to make it happen is a maddening and slippery project.

Sometimes I wonder whether the language of financial regulation allows us to make appropriately nuanced normative claims about what's at stake: an essential tension between the market, the state, and society. Has the clarity of economic scholarship and the constant reference back to efficiency blinded us to other, more resonant ways of framing these issues?

Erik Gerding

Thanks for this comment, Cristie. I do worry that our (and particularly) focus on economic efficiency can prevent us from discussing the broader and vital political and social values that are at stake in financial regulation and the regulatory process more generally. Economics is not value free.

There is nothing close consensus, however, in the United States today on the balance among market, state, and society. A lack of consensus should not stop a conversation. At the same time, no one can find that the events leading up the financial crisis was a sensible balance. Privatizing gains and socializing risk doesn't accord with any principled political view.

I understand the rage and romance that drives the Tea Party, but Tea Party opposition to financial reform strikes me as misguided and an indication of a political dialogue that has run off the rails. First, it is just not credible that the government will not bail out financial firms. Second, the bailouts weren't the only problem. Had we allowed more financial firms to founder, we can debate what the exact consequences would have been, but they would have been severe. Financial institution risk imposes severe negative externalities -- to to put it more bluntly -- hurts workers, businesses, homeowners, who may never have taken out a subprime mortgage or invested in Wall Street.

I think the populist wave after the financial crisis has been severely misdirected and squandered. My question is how does one channel populist rage so that it is productive. Personally, I get extremely nervous about populism and whether its energies in the wake of financial crises can be harnessed. The history of financial crises is full of exmaples of scapegoats and ugly legal reactions. (To reach far back in history: the English stock market bubble that burst in 1696 prompted Parliament and the mayor of London to impose restrictions that limited the number of Jewish stock brokers).

We didn't really discuss it much in the forum -- despite Kim's prodding -- but popular energy is an incredibly powerful force that scholarship can too easily sidestep because of discomfort, the messiness it can add to analysis or whatever.

The comments to this entry are closed.


  • StatCounter
Blog powered by Typepad