But underneath all the details, such as whether the FDIC or the Treasury would have the power to close down a bank holding company like Citigroup, or exactly how the government would go about defining what kind of institution would pose "systemic risk" if it failed, or what the exact level of capital requirements will be appropriate, there was one significant question that wasn't being asked, at least not directly. And that was: If we change the rules, will you enforce them?
It's not often that you see leftwing critics like economist Dean Baker and hedge fund traders on the same page -- but both have been saying slightly different versions of the same thing lately (albeit for different reasons): We've got plenty of regulation in place. Dean Baker says all the hoopla about needing a systemic regulator is overblown. The Fed, he says, is already the systemic risk regulator -- it just didn't have the will to do what was necessary with respect to AIG or the big banks. Meanwhile, one hedge fund trader quoted in the Journal complained that there were already plenty of hoops for the hedge funds to jump through. We don't need any more, he whined.
You can make a good case that Wall Street ran amok not so much because the rules allowed it do so, but because a tacit admission from government has been in place more or less since the election of Ronald Reagan that regulators wouldn't be too industrious in applying the rules. So the real question that should be asked of Tim Geithner is not: What are the details, but what do you plan to do?
The "capitalism has failed" meme makes me want to vomit as much as the knee-jerk defenses of how well the system has worked. We didn't end up with this crisis because of "raw" or "unfettered" markets. We got here because we had a corrupt system where the winners wrote corrupt rules (or caused corrupt enforcement of the rules, same difference) so that they could keep winning. That's got nothing to do with the success or failure of markets.
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