In a recent post I suggested that higher capital requirements might be called for if policymakers were unwilling to bite the bullet and remove moral hazard from our financial system.
The FT has a new article discussing a Treasury proposal to end Too Big To Fail, by setting up a new type of bankruptcy for big banks. I wish them well, but remain skeptical. In my view, the only way we’ll ever be able to remove moral hazard is with monetary policy reform. If we can get to a policy of NGDPLT, then policymakers will no longer have to worry about the consequences of the failure of a big bank. Unfortunately, that’s likely to take many decades, as we first need to implement the policy, and then see how it does during a period of financial distress. Only then would policymakers begin to feel comfortable rolling back TBTF. (And even then, special interest groups will try to keep it in place.)
PS. The NYT has a new post showing that historians view Trump as being the worst President in American history. That’s also my view. Some people judge presidential performance by how the country is doing. That’s about like judging my blogging based on how monetary policy is doing. A couple posts I’d recommend are Yuval Levin explaining why Trump is not actually the President, in the conventional sense of the term. He’s not qualified to be President, so day-to-day decisions are made by others. Thus the GOP “deep state” wisely vetoed his recent attempt at crony capitalism, which would have re-regulated the coal and nuclear industry as a backdoor way of bailing them out. The outcome was good, but Trump’s specific input into the process was destructive. Matt Yglesias also has a good post, explaining why Trump is much more corrupt that even lots of left-of-center reporters assume.
PPS. I have a new post on budget and trade deficits, over at Econlog.