Are the financial reforms now being debated in Congress strong enough to prevent the next crisis?
They’re a step in the right direction, but they don’t go far enough. One of the biggest problems is that the Senate’s version of the proposed Financial Product Safety Commission [which would try to rein in some of the egregious lending practices that helped inflate the housing bubble] is inside the Fed, and the Fed has a terrible record in consumer protection. It’s an organization basically dominated by banking interests. Congress also hasn’t done enough on the credit default swap issue, which was at the heart of the crisis. [Swaps insure against a borrower’s default. Speculation in them reached astronomical levels during the bubble.] The lack of transparency in a significant fraction of that market will continue, and that means that the discipline of the marketplace can’t occur, because no one can know what’s really going on. Another big issue is bonuses and incentives. We’ve been reluctant to take the kind of strong measures that the United Kingdom has taken [such as heavy taxation o
