David Leonhardt discusses 4 easy ways to improve the Financial Reform legislation:
DERIVATIVES Too many investors used debt to buy their derivatives, leaving no margin for error when prices fell.Put these on exchanges, disallow debt for purchases, place some restrictions on iBank derivative trading;
CONSUMER PROTECTION Why didn’t any government agency prevent banks from issuing mortgages that homebuyers obviously could not repay?
Create a new consumer watchdog for credit cards, mortgages and other financial products. A separate agency — away fromt he Fed, with an independent budget, and White House appointment of director;
FED CREDIBILITY The more checks and balances on the Fed, the better the odds of avoiding another crisis. Audit the Fed’s actions before, during and after the crisis. Create an independent Office of Financial Research, that could identify problems even if the Fed does not.
BAILOUTS Banks will get in trouble again, just as they have for 800 years. The government may then need to prop up a bank to avoid another panic.
Better approach: Permanent tax on banks, based on how much debt they have and how risky their holdings appear. This goes int a future bailout fund. Let thew finance sector fund their own bailouts, not the tax payers.
Good stuff, worth a read. . .
Four Ways to a Better Finance Bill
NYT, May 25, 2010 http://www.nytimes.com/2010/05/26/business/economy/26leonhardt.html