Tags: IMF | Economist | Dodd | Frank

Ex-IMF Economist: Dodd-Frank a Failure

Friday, 20 Aug 2010 11:56 AM

Economist and former International Monetary Fund Chief Economist Simon Johnson says Congress failed badly by not passing the Brown-Kaufman amendment to the recently passed Dodd-Frank financial regulatory bill.

"Democratic supporters have been asking their representatives the obvious question: Why did you vote against Brown-Kaufman?" Johnson writes in The New York Times.

"The premise was simple - and could fit on a bumper sticker (or in a campaign flier for November) - 'too big to fail is too big to exist.'"

Interestingly, Johnson notes, no senators have yet replied on the record that “the power of the megabanks was too great to be overcome."

Instead, they are answering constituents’ questions by saying that the amendment “would not comprehensively solve the problems of systemic risk and systemically important institutions,” an argument Johnson finds odd because no one ever claimed that limiting the size of our largest banks was, by itself, sufficient for financial stability.

“Rather,” Johnson says, “the argument was that this step was necessary — given the political power of these banks and their manifest ability to individually (and collectively) wreak great damage.”

Johnson also says that leading members of the Obama administration claimed that Brown-Kaufman would somehow have led to job losses and lower tax revenue, even though the amendment had a three-year phase-in period.

However, Johnson says, as A.F.L.-C.I.O president Rich Trumka told one member of Congress, “It was the financial crisis and the reckless speculation of too-big-to-fail financial institutions that caused 8 million working people to lose their jobs and huge drops in the stock market and losses to pension funds.”

The problem is, Trumka observes, too-big-to-fail banks can borrow more cheaply than their competitors because big-bank creditors believe the government will bail them out.

New York Magazine reports that a senior Treasury official said that, “If enacted, Brown-Kaufman would have broken up the six biggest banks in America,”

“If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.”

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Economist and former International Monetary Fund Chief Economist Simon Johnson says Congress failed badly by not passing the Brown-Kaufman amendment to the recently passed Dodd-Frank financial regulatory bill. Democratic supporters have been asking their representatives...
IMF,Economist,Dodd,Frank
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