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Analysis: Has Dodd-Frank solved the moral hazard problem?

Marketplace Staff May 25, 2011
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Analysis: Has Dodd-Frank solved the moral hazard problem?

Marketplace Staff May 25, 2011
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JEREMY HOBSON: Now let’s turn to our regular Wednesday guest. Richard DeKaser is an economist with the Parthenon Group and he join us live from Boston. Good morning.

RICHARD DEKASER: Good morning.

HOBSON: Well what do you think? Do you agree that Dodd-Frank has sort of solved the moral hazard problem?

DEKASER: I wouldn’t go so far as saying its solved it. It does help. This early intervention allowance by the Federal Reserve which should prevent some real fiascoes from happening. But so long as there are huge banks for example, the top fives banks in this country have about 70 percent of all bank assets. That is they’re too big to fail. And as long as the government doesn’t want to nationalize them, there will be moral hazard and it may be mitigated, but it’s still out there.

HOBSON: Richard, all the rules from the Financial Regulation Reform Act — the Dodd-Frank Act — are being sort of figured out by the regulatory agencies right now and the lobbyists are pouring in trying to weaken them as much as they can. Do you think we’ll end up with a good set of rules?

DEKASER: I think we will. I think relative to where we were say in 2008 I think things will be markedly improved. But of course lobbyist are working very hard to protect their interests. That is shareholders of existing institutions — they don’t want the government to impose a complete failure on them. So they will be watered down somewhat.

HOBSON: Richard DeKaser, economist with the Parthenon Group, thanks so much.

DEKASER: My pleasure.

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