Does GE Capital’s Demise Mean Financial Reform Is Working?


Interesting post today from Paul Krugman about the shadow banking system and GE’s recent decision to get out of the finance biz:

GE Capital was a quintessential example of the rise of shadow banking. In most important respects it acted like a bank; it created systemic risks very much like a bank; but it was effectively unregulated, and had to be bailed out through ad hoc arrangements that understandably had many people furious about putting taxpayers on the hook for private irresponsibility.

Most economists, I think, believe that the rise of shadow banking had less to do with real advantages of such nonbank banks than it did with regulatory arbitrage — that is, institutions like GE Capital were all about exploiting the lack of adequate oversight….So Dodd-Frank tries to fix the bad incentives by subjecting systemically important financial institutions — SIFIs — to greater oversight, higher capital and liquidity requirements, etc.. And sure enough, what GE is in effect saying is that if we have to compete on a level playing field, if we can’t play the moral hazard game, it’s not worth being in this business. That’s a clear demonstration that reform is having a real effect.

Read the whole thing for more.

By the way: On the occasions when I come up for air and write blog posts, I’ll probably mostly be doing stuff like this. That is, quick links to something interesting without much additional commentary.

The reason is fatigue, which is nearly everpresent these days. Physically, this is a nuisance, but not much more. Mentally, though, it’s worse, because it leaves me without the—what’s the right word? Cognitive will? Cognitive ability?—to really think hard about stuff. And without that, I can’t blog much even though typing is, obviously, not a very physically demanding activity.

Still, I continue to keep up as best I can, and I really love to blog. I won’t quite say that being unable to blog is the worst part of this whole chemotherapy thing, but it’s close. I just hate having ideas about the stuff I read but being just a little too foggy to really be sure of my ability to say something useful and coherent about it. So I’ll continue pointing out items that interest me, but mostly leaving it at that.

In case you’re curious, I use crossword puzzles as a sort of rough guide to my mental fatigue level. This afternoon, for example, I finished one. Hooray! That means I’m at least moderately alert. However, it was a Thursday puzzle1 and it took me about three hours to finally get through it. That’s not so great. But who knows? Maybe it was just unusually hard. I’ll try another one tonight.

1For those of you who aren’t into crossword puzzles, the New York Times puzzle gets harder as the week progresses. A Thursday puzzle is a bit of a challenge, but usually not a big one. Good solvers can finish them in 5-10 minutes. For me, it’s usually 15-30 minutes. Three hours is well outside my usual range.2

2Hmmm. On the other hand, maybe this wasn’t my fault. I just checked, and the name of the third baseman in Abbott & Costello’s “Who’s On First?” sketch is indeed “I don’t know.” I kept trying to fit that in somewhere, but the answer in the puzzle was “Tell me something.” Where did that come from?3

3Meh. While I was falling asleep I figured out where I’d gone wrong. The full NYT answer was “Tell me something I don’t know.” Perfectly correct. I just wasn’t alert enough to figure it out.