Bottom-up or top-down bank regulation?
Mike and David discuss the need for regulation of banks and the need for rules to separate large commercial banks from the speculative activities (such as gambling) of the investment banking sector. More broadly, they consider the causes of risky behavior in the banking sector: is it a lack of regulation or harmful regulation that leads to privilege?
Issues surrounding fractional reserve banking have come back into focus in this debate, but it also extends into the murky world of investment banking, with its securitized assets, derivatives and other exotic financial instruments — a world of fraud, gambling and financial fog.
How much separation is necessary or possible? Is it possible to insulate the real economy from speculators? These and other questions are being asked as the demolition of the magic money tree is underway and the conversation narrows to focus on more concrete issues.
