The Simple Answer

by digby

More Krugman:

Those who think that “too big to fail” is the essence of the problem have to explain why Canada, with basically just five banks, has avoided crisis. Those who blame the Fed for keeping interest rates too low too long have to explain why Canada, which basically had the same interest rate experience we did, didn’t have anything like the same problems.

So what’s Canada’s secret? Regulation, regulation, regulation. Much stricter limits on leverage, much stricter limits on unconventional mortgages, and an independent consumer protection agency for borrowers.

Barney Frank’s reform bill would move the United States a long way in Canada’s direction. And that may be the simplest way to explain why it’s a good thing, eh?

In a conversation last evening with some smart friends I idly mused that perhaps the Republicans would figure out a way to “support” some very watered down legislation so they could cop some of that populist cream in the election. But I suppose the question is whether or not the bankers will allow their employees to do that — and what is entailed in the bills. If it’s Canadian style banking regulation, I think I was wrong.  They cannot sign on to regulations. Indeed, I’m not entirely sure they can pass it in the House or get 51 votes in the Senate for that.

It’s too bad if that’s the case because the Democrats really need to place at least some of the blame for this mess on the big money boyz who gambled and lost.  And they need to use government to fix it unless they truly do want  the Republicans to reap the rewards by touting deregulation as the problem. Of course, that assumes they want to retain the majority, which they quite possibly do not. Governing is a pain.

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