This morning, Senate Minority Leader Mitch McConnell (R-KY) declared his opposition to the financial reform bill before the Senate. McConnell claimed to have principled objections to the bill, saying that it “institutionalizes” bailouts of Wall Street and that it would give the Federal Reserve “enhanced emergency lending authority that is far too open to abuse.” What McConnell did not mention was that, last week, he traveled alongside National Republican Senatorial Committee chairman Sen. John Cornyn (TX) to New York City for a private meeting with elite hedge fund managers and other Wall Street executives. The purpose of the meeting between the top Republicans and the financial executives was to enlist “Wall Street’s help” in funding Republican campaigns in the fall and killing any tough financial reform.
Separately, House Republican Conference Chairman Mike Pence (R-IN) met with hedge fund managers this morning and told them that “Democrats’ solution for financial reform consists of two words: government control.” He added, “America will continue to be the home of freedom and the free market; the place where liberty prevails.”
Krugman wrote about the need to reform the financial system in this short post on his blog at the New York Times -- Bank Failure: Two Brief Notes:
1. Some commenters on this blog have argued that lots of small banks failed in Georgia, without systemic consequences. But these banks weren’t allowed to collapse; they were seized by the FDIC — in effect, nationalized — and their depositors were protected. That is, in effect they were rescued, although the stockholders were cleaned out.
2. Other commenters say that lessons from the 1930s are no longer relevant, because now we have deposit insurance. Um, shadow banking? That’s the point I keep trying to make: what happened to us in 2007-8 was that a large banking system had grown up, relying on repo and other forms of short-term borrowing rather than deposits, that wasn’t covered by New Deal-era protections and regulation. So what we had was the 21st-century version of a bank run; not crowds of people lining up at bank doors, but crowds of investors demanding haircuts on repo, which has the same effect.