Virginia Policy Review
77
! proprietary trading by banks holding FDIC insured deposits. Banks should not be able to trade with an explicit public safety net beneath them. These four actions would reduce the probability of a future financial crisis on the scale of 2007-2008. This would help bring money back into the banking system on a market basis, rather than having the big banks on a FED sponsored life-support system. No system of regulation is perfect, just as no burglar alarm or lock is fail-proof and policing does not eliminate crime. But we spend money on police, locks and alarms to reduce the probability and scale of crime. The costs of the financial crisis far exceed the cost of crime in the United States. It’s time to re-regulate the financial system to replace the current predatory financial casino with a financial system that helps the economy grow. Herman Schwartz is currently a professor in the Department of Politics at the University of Virginia.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! i Author calculations from World Federation of Exchanges, http://www.worldexchanges.org/statistics; IMF, Global Financial Stability Report, September 2003; OECD, Economic Outlook, # 80, December 2006. ii “3-Month AA Nonfinancial Commercial Paper Rate,” Federal Reserve Database (FRED), accessed
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! on December 20, 2012, http://research.stlouisfed.org/fred2 /series/CPN3M?cid=120; S. Chomsisengphet and A. Pennington-Cross, “Evolution of the Subprime Market,” Federal Reserve Bank of St. Louis Review 88, no. 1 (2006): 37-8.