Saturday, May 14, 2011

Obama's financial reform is "Moderate 1990s Republican"

Mike Konczal at RortyBomb has two interesting observations:

Darrell Duffie on Regulating Foreign-Exchange Swap; Moderate 1990s Republican Style Financial Reform?

This is interesting. Well-respected Stanford University financial economics professor Darrell Duffie comes out in favor of regulating the foreign-exchange swap market:

“There’s as much reason to clear this class as any other class of derivative,” Duffie said in a telephone interview today. The market, which consists of all the largest global banks, for foreign-exchange forwards and swaps is $25.6 trillion in notional value, according to the Bank for International Settlements.

“If those were to suddenly revalue, we don’t know whose ability to pay is threatened,” Duffie said.

Read more.

Konczal then puts the Obama adminstration and Dodd-Frank financial reform in an interesting context:
Ezra Klein had a very good observation a while back: ”President Obama, if you look closely at his positions, is a moderate Republican of the early 1990s. And the Republican Party he’s facing has abandoned many of its best ideas in its effort to oppose him.”

I’ve been meaning to try and develop this argument with regards to financial reform, so please jump in if you’d like. Let’s make three assumptions: (1) I’m not sure how to best describe the political economic default policy outlook of the participants of the Squam Lake working group – people like John H. Cochrane, Darrell Duffie, Frederic Mishkin, Raghuram G. Rajan. Let’s say it’s moderate Right, what we could comfortably call early 1990s moderate Republican.

(2) You can take the Squam Lake report on what financial reform should look like as a kind of moderate Right/moderate Republican view of financial reform post-financial crisis. (3) Dodd-Frank is conceptually similar in theory and very similar in practice to the Squam Lake’s report.

If those pan out, Dodd-Frank financial reform act, like cap/trade and health-care reform and others, would be the equivalent of a moderate Republican approach to finreg in an age where moderate Republicans have become extinct.

Read more.

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