Reprinted from Elizabeth Warren Blog
For too long, the opponents of financial reform have cast the debate as an argument between the pro-regulation camp and the pro-market camp. They generally put Democrats in the first camp and Republicans in the second.
But that so-called "choice" gets it all wrong.
Rules are not the enemy of markets. Without some basic rules and accountability, financial markets don't work. People get ripped off, risk-taking skyrockets, and markets fall apart. Rolling back the rules or firing the cops can be profoundly anti-market.
This week, I gave a big policy speech where I presented ways we can promote competition, innovation, and safety in financial markets. The speech was long and wonky, but it really boils down to two principles:
- First, financial institutions shouldn't be allowed to cheat people. Markets work only if people can see and understand the products they are buying, only if people can reasonably compare one product to another, only if people can't get fooled into taking on far more risk than they realize just so that some fly-by-night company can turn a quick profit and move on. That's true for families buying mortgages and for pension plans buying complex financial instruments.
- Second, financial institutions shouldn't be allowed to get the taxpayers to pick up their risks. That's true for using insured deposits for high-risk trading, and it's true for letting Too-Big-to-Fail banks get a wink-and-a-nod guarantee of a government bailout.
We know what changes we need to make financial markets work better. Strengthen the rules to prevent cheating. Make the cops do their jobs. Cut the banks down to size. Change the tax code to promote more long-term investment. Tackle shadow-banking done by non-bank firms and subsidiaries.
The secret to better markets isn't turning loose the biggest banks to do whatever they want. The secret is smarter, more structural regulation that forces everyone to play by the same rules and doesn't let anyone put the entire economy at risk.
The key steps aren't hard. It just takes political courage -- and a strong demand from people like you -- to complete the unfinished business of financial reform.