Oh No! “This Will Force Banks to Change”!

Surprise, surprise, Larry Tabb, the founder and chief executive of Tabb Group, is complaining about regulation of the financial sector. He starts off strong:

Mea Culpa? Yes, the banks did wrong. They became overlevered; hopped-up on greed, they took on more credit than a loan shark would have extended. When the bets turned sour, they went cap in hand to the taxpayer. Once bailed out, the banks threw petrol on the fire by not being contrite, hoovering up cheap cash, paying bonuses as if there were no tomorrow and refusing to develop a set of even the least offensive business restrictions.

But quickly changes course:

So what did legislators and regulators do? They did what they normally do in a crisis: they legislated and regulated. While the new rules may or may not preclude another crisis, they will certainly punish the banks and may inadvertently punish the taxpayer.

Why, as he notes elsewhere, it’s a literal “legislative tsunami”! “This will force banks to change”! We will “inadvertently punish the taxpayer” and “we’ll all be affected”!

You know the jobs argument is coming. Ah, here it is:

As borrowing costs increase, governments, corporations and people will pay more to borrow, reducing investments, leverage, purchases and subsequently jobs.

I think that it’s his job, or rather his compensation, that he’s really worried about. But you knew that.

Anyway, here’s the big ending:

Our challenge as an industry and as a global community will be to understand this new world and ensure that the few mega banks we love to hate don’t get dissolved into thousands of entities we truly despise.

The big banks are bad, but if we break them up it will be even worse, we’ll have “thousands of entities we truly despise.” So best to leave well enough (ahem) alone.

I’m sure the “founder and chief executive” types making these arguments actually believe they are so very, very important that any attempt whatsoever to regulate their behavior will cost the rest of us big time, but that doesn’t mean we have to believe it too.

About Mark Thoma 243 Articles

Affiliation: University of Oregon

Mark Thoma is a member of the Economics Department at the University of Oregon. He joined the UO faculty in 1987 and served as head of the Economics Department for five years. His research examines the effects that changes in monetary policy have on inflation, output, unemployment, interest rates and other macroeconomic variables with a focus on asymmetries in the response of these variables to policy changes, and on changes in the relationship between policy and the economy over time. He has also conducted research in other areas such as the relationship between the political party in power, and macroeconomic outcomes and using macroeconomic tools to predict transportation flows. He received his doctorate from Washington State University.

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