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Krugman: Republicans Stance On Resolution Authority Is Like Saying We Can Solve The Problem Of Fires By Abolishing The Fire Dept

Rachel Maddow talks to Paul Krugman about the financial reform bill and what may or may not work that's in it to reign in Wall Street and eliminate th
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Rachel Maddow talks to Paul Krugman about the financial reform bill and what may or may not work that's in it to reign in Wall Street and eliminate the risks to the economy in the financial system. Krugman has some harsh words for Republicans when Rachel asks him "how has the Republican Party been making either criticisms to the existing bill or proposals for what they would do instead that make sense to you as an economist?"

Krugman: No, I mean it's, well first of all it's obvious they're actually huddling with the bankers, huddling with Wall Street to figure out way to stop this thing and then proclaiming that what they're doing is really preventing future bailouts of Wall Street. But no, there has been nothing there. There's been no proposal. The only thing they've been doing is claiming that resolution authority is just setting you up for future bailouts, we should just promise not to have future bailouts.

Now as I've written that's like saying we have solved the problem of fires by abolishing the fire department and then people will know that their buildings will burn down, so they won't let that happen. It's just not a coherent... it's a dangerous idea if anything.

Here's an illustration from one of Paul's posts at the NYT's making that exact point. Ezra Klein said the Democrats should be calling it "execution capacity".

The New Yorker Explains Resolution Authority

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More on that from Krugman here -- The Fire Next Time.

Maddow and Krugman also discussed another one of his op-eds earlier in the interview -- Six Doctrines in Search of a Policy Regime:

Health reform, for all the complexities of its details, was a pretty clear issue; there was almost a theorem-theorem-lemma feel to figuring out what had to be done, leading you to something like the actual reform we got. Yes, there should have been a public option. But the basic structure of the issue was clear.

Financial reform is a much messier debate. It doesn’t break down simply on some left-right axis, although that’s there too. Instead, there are a bunch of competing views of what the problem is all about. In fact, by my count there are six such views. They’re not all mutually exclusive, but it matters which of the six you place at the top of the list.

Now, I have a personal opinion: basically, I believe in view #2, with some allowance for #3 and #4 too. But before I defend my version, let me lay out the list of candidates for explaining the mess we’re in. Later on, I’ll also describe three visions of financial reform, again along with my personal preference.

So: what’s the problem? Here are the views I see out there.

- Size: Our largest financial institutions have just gotten too big

- Shadows: The rise of shadow banking, institutions that fulfill banking functions but evade the regulatory regime, has undermined stability

- Opacity: We’ve come to rely on complex financial instruments that neither regulators nor the private sector

- Predation: Financial firms deliberately misled consumers and investors

- Government intervention: Public policy pushed lenders into making bad loans, especially to the poor

- Monetary mismanagement: The Fed did it by keeping interest rates too low for too long, and/or policymakers panicked in 2008 and spooked the markets

Read on...

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