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Fallout: The Financial Crisis

Bernanke calls for regulatory overhaul

Steve Henn Mar 10, 2009
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Fallout: The Financial Crisis

Bernanke calls for regulatory overhaul

Steve Henn Mar 10, 2009
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TEXT OF STORY

Kai Ryssdal: House Financial Services Committee Chairman Barney Frank did what he could to put some steel back in Wall Street’s spine today. Frank said he wants to see something called the uptick rule back in effect, perhaps by the end of the month too. Not to get all complicated on you here, but the uptick rule says short sellers, that is, traders who are betting a stock will go down, can only sell short when the last trade in a given stock was up. Prevented piling on a falling stock is what it did. The SEC got rid of it back in 2007. And a whole lot of people say that contributed mightily to the fall of Bear Stearns and Lehman and so helped get us where we are today.

Where Ben Bernanke was today was making a speech to the Council of Foreign Relations. He said the rules that are supposed to cover this country’s troubled financial system need to be re-written. Congress has already started its debate. So today the Fed Chairman laid out his own ideas. Marketplace’s Steve Henn reports.


STEVE HENN: Financial regulation is a balkanized mess. There’s the Fed, the FDIC, the CFTC, the SEC, OTS, the OCC, not to mention more than 100 state regulators too. And Ben Bernanke says it’s not working.

BEN BERNANKE: We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components.

So today, the Fed chairman outlined his ideas. Bernanke said more institutions that are too big to fail — should fail. We should plan for huge failures and figure out how to deal with them in an orderly way. Hal Scott, at Harvard, says interconnectedness is an issue too.

HAL SCOTT: The problem in the past is if we had one bank that owed a billion dollars and it didn’t pay it would cause an unwinding of the entire system.

The banks that got stiffed wouldn’t be able to pay their own debts, which is why Lehman Brothers’ failure last fall was so terrifying to Wall Street. We have to fix that. Next, Bernanke said banks should have to set aside more money in good times so when the economy sours they’ll have enough. And finally, he says someone needs to be looking out for big threats to the entire system and have the powers to head them off. So who gets to wear the cape and tights?

SCOTT: Who else would it be?

Hal Scott says the Fed’s record as a regulator isn’t that strong but…

SCOTT: I can say they are very good at what they want to be good at.

And if there is a big systemic failure, it’s the Fed and its billions that have to fly to the rescue.

In Washington, I’m Steve Henn for Marketplace.

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