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Home Publications Blogs Beat the Press NPR Tells Listeners That Financial Regulation Is 'Complicated'

NPR Tells Listeners That Financial Regulation Is 'Complicated'

Friday, 09 April 2010 05:47

We need reporters to do this? In the course of the report NPR assured readers that there was nothing that could be done about AIG's explosive issuance of credit default swaps (CDS) because it was an insurance company that operates in hundreds of countries. And furthermore, the federal government doesn't even regulate insurance, states do.

Did this mean that the Fed could do nothing if it chose? Where were the statutory powers that allowed the Fed to arrange the unraveling of the Long-Term Capital Hedge Fund? Neither NPR's reporters nor anyone else would be able to find any statutory authorization for this action. The Fed used its authority and its ability to threaten non-cooperative actors to force most of the major banks to join this effort.

In the same vein, if it had decided that the issuance of trillions of dollars of CDS by AIG was a problem, there were certainly steps it could have taken. For example, it could have told the major banks that they should not be buying CDS from AIG. The Fed is also allowed to talk to other regulatory agencies, like the state insurance agency in NY, which would have had authority over much of AIG's activity. The Fed opted to do nothing in this case because it did not want to do anything, not because it lacked the ability to restrain AIG.

The piece also absurdly claims that the bills before Congress will take care of the problem of "too big to fail" banks. Few analysts would agree with this assessment. The bills leave in place huge financial conglomerates that would be extremely difficult to unravel in the event of a financial crisis.

Listeners would be better served if NPR focused on making the issues surrounding the bill understandable rather than spending its brief news time telling its audience how complicated it is.

Comments (1)Add Comment
futures contracts are futures contracts
written by Michael, April 14, 2010 11:02
Just because a bet is being made on solvency of a financial firm as opposed to the likelihood that an outbreak of cold weather will harm the orange crop is no reason to treat the two "bets" differently. And in the case of oranges or pork bellies or gold prices we have regulated exchanges to manage the bets on either side. The exchanges assure that the participants can back up their bets and intervene to stop the action when a player is found to be a scalawag. This goes hand in hand with busting up "too big to fail" because these "too bigs" will ignore the exchange. But what is at risk is the control of money itself. The elected government runs the risk of losing control of its own currency.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.