In a Real Clear Politics video of an interview of Ralph Nader and Barney Frank (Rep. MA), Frank declares, "We are trying on every front to increase the role of government in the regulatory area." There is a noun for Frank in the Spanish language, sinverguenza; roughly translated, it means shameless. For those who don't recall, Frank was deeply involved in fighting tighter regulation of Fannie Mae and Freddy Mac, the two GSE's that were deeply involved in the financial crisis.
While it may be fair to assert that the regulation was wrong, it is disingenuous to assert that financial regulations were nonexistent. The government currently has layers and layers of regulation on banks and other financial corporations. Those layers increased with the Sarbanes-Oxley Act of 2002. This act is both costly to government in establishing and maintaining a regulatory structure, and more importantly to the private sector in compliance. The international Basel accords govern financial institutions in more than 100 countries. The regulators who implemented the accords and other regulatory measures failed to recognize and stop the financial crisis. Perhaps regulators are no wiser than market participants. All regulation should be approached with caution for their unintended impact on innovation and growth as well as their direct cost. Members of Congress who are working to tighten financial regulation should read the empirical findings of Robert Barro in "Determinants of Economic Growth."
The regression (a statistical technique)...shows a significantly negative effect on growth from the ratio of government consumption (measured exclusive of spending on education and defense) to GDP...The particular measure of government spending is intended to approximate the outlays that do not improve productivity. Hence, the conclusion is that a greater volume of nonproductive government spending--and the associated taxation--reduces the growth rate for a given starting value of GDP. In this sense, big government is bad for growth.
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"Perhaps regulators are no wiser than market participants. All regulation should be approached with caution for their unintended impact on innovation and growth as well as their direct cost." I agree completely with this. The economy is a hit-and-miss system. While the outcome of a regulation or restriction may be predicted to an extent, no one really knows exactly how it will effect the economy in the long run. I think that, for the most part, just dive head first into certain things and hope for the best.
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