Krugman: A Victory Against the Shadows

[muriel_volestrangler]

There are two big lessons from GE’s announcement that it is planning to get out of the finance business. First, the much maligned Dodd-Frank financial reform is doing some real good. Second, Republicans have been talking nonsense on the subject. OK, maybe point #2 isn’t really news, but it’s important to understand just what kind of nonsense they’ve been talking.
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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.

Now, the more or less official GOP line is that the crisis had nothing to do with runaway banks — it was all about Barney Frank somehow forcing poor innocent bankers to make loans to Those People. And the line on the right also asserts that the SIFI designation is actually an invitation to behave badly, that institutions so designated know that they are too big to fail and can start living high on the moral hazard hog.

But as Mike Konczal notes, GE — following in the footsteps of others, notably MetLife — is clearly desperate to get out from under the SIFI designation. It sure looks as if being named a SIFI is indeed what it’s supposed to be, a burden rather than a bonus.

http://krugman.blogs.nytimes.com/2015/04/11/a-victory-against-the-shadows/