Tags: Krugman | vampires | financial | reform

Krugman: 'Vampires of Finance' Seek to Bring Down Financial Reform

By    |   Wednesday, 13 May 2015 08:57 AM

Many bankers criticize the 2010 Dodd-Frank financial reform law for stifling the financial services industry.

But Nobel laureate economist Paul Krugman thinks they're way off base, and he's not too impressed with what he sees as their motives.

"Last year the vampires of finance bought themselves a Congress," he writes in The New York Times.

"These days Wall Street, which used to split its support between the parties, overwhelmingly favors the GOP. And the Republicans who came to power this year are returning the favor by trying to kill Dodd-Frank."

But Dodd-Frank is working Krugman argues. He cites regulation of abusive lending practices and derivatives as proof.

Yet "the enemies of reform can’t withstand sunlight," Krugman states. And that's why they are vampires.

"Does this mean that all is well on the financial front? Of course not," he states. But, "Dodd-Frank is much better than nothing."

Meanwhile, two unlikely allies — liberal Sen. Elizabeth Warren, D-Mass., and conservative Sen. David Vitter, R-La. — are combining forces to create a bill that would curtail the Federal Reserve’s power to offer emergency loans to financial institutions in a crisis.

The legislation could be introduced as soon as Tuesday, sources tell the Financial Times. The Fed deployed emergency loans during the 2008-09 financial crisis.

In a joint statement last week, Warren and Vitter's offices said, "the two senators are  working on legislation to further halt megabank bailouts during a crisis."

Fed critics hailed the action. "People will try to portray this [bill] as something far out, but it’s absolutely not," Marcus Stanley policy director of Americans for Financial Reform, told the FT. "They’re long-accepted principles that have traditionally governed lending of last resort and are well-supported by academic research."

Not surprisingly, the Fed and its allies oppose the move. "I hope Congress keeps in mind why they founded the Fed in 1913 and allows the Fed to adapt its facilities to a 2015 world," former Fed Gov. Donald Kohn told the FT.

Many Republicans are upset with the Fed's massive easing program that has kept the federal funds target rate at a record low of zero to 0.25 percent since December 2008 and expanded the central bank's balance sheet to $4.5 trillion.

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Many bankers criticize the 2010 Dodd-Frank financial reform law for stifling the financial services industry.
Krugman, vampires, financial, reform
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2015-57-13
Wednesday, 13 May 2015 08:57 AM
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