…Ed Andrews’ critique of Paul Volcker’s plan for taming the big banks’ incentives to take excessive risks? Andrews, a former business reporter for The New York Times, points out that Volcker used bait-and-switch tactics, defining the problem in terms of “too big to fail” and then wimping out with a proffered fix that is too modest to take seriously. (Charlie Gasparino of The Daily Beast goes further, suggesting that Volcker’s remedy would miss the target entirely.)
Andrews rightly wonders why Volcker doesn’t have the stomach for managing the too-big-to-fail problem by limiting the size of banks. And he notes that, even if breaking up the megabanks proved to be a political non-starter, one could go a long way toward the same end by sharply increasing their capital requirements.
The problem here – well, one problem, anyway – is that policy makers don’t want to do anything that raises the cost/availability of credit for businesses or homebuyers while the economy remains in recession. Trouble is, once the economy does recover, the “too big to fail” issue will seem less pressing and Washington will have even less stomach for demanding that the banks do anything they don’t want to do.