News and Commentary
Paul Volcker passed away this week at the age of 92. While he is most famous now for (among other things) the Volcker Rule, it is also important to remember his role in establishing the too big to fail precedent due to his involvement in the Hunt silver speculation bailout. In the words of economist Albert Wojnilower, “It is now everywhere taken for granted that no monetary authority will allow any key financial actor to fail.”
Lachlan Markay in The Daily Beast writes about how Elizabeth Warren’s brainchild, the Consumer Financial Protection Bureau (CFPB), wound up turning into a revolving door. Many of the earliest staffers for the CFPB came from finance and consulting backgrounds, and many of those who worked at CFPB went back into the private sector. Part of this has to do with the fact that firms, understandably, want someone with experience in drafting and enforcing the rules they had to comply with so they can understand them. On the other hand, experience in government is an asset to firms seeking connections.
The Cato Institute’s Diego Zuluaga reviews Thomas Philippon’s critique of the financial sector in his new book The Great Reversal. Zuluaga disagrees with Philippon on the profits of banks relative to other industries and the nature of bank concentration, but agrees that regulations preventing non-bank firms from providing basic financial services restrict entry and play a role in increasing concentration.
George Selgin critiques the notion that bank runs, in and of themselves, are the sole cause of bank failures. His argument is made to critique an argument for deposit insurance, and his review of history finds that while bank runs do occur and can be the tipping point that forces an otherwise-solvent bank to go under, in fact most banks that failed during a run were “pre-run insolvent.” Bank runs emerging from general panic among depositors (like happened in 1933) can occur, but they can’t be separated from a broader downturn in the financial sector.
Watch Sir Paul Tucker, author of Unelected Power, give the luncheon address at the Cato Institute’s Annual Monetary Conference.