At his blog, Nobel Prize economist Paul Krugman succinctly explains the importance of banking regulation and why Barack Obama must fight for it—and win:
I’m reading Gary Gorton’s Slapped by the Invisible Hand, which tells us that there were bank panics — systemic crises — in 1873, 1884, 1890, 1893, 1896, 1907, and 1914.
On the other hand, there were no systemic crises from 1934 to 2007.
The problem, as Gorton makes clear, is that the Quiet Period reflected a combination of deposit insurance and strong regulation — undermined by the rise of shadow banking. So we have a choice: restore effective regulation or go back to the bad old days.
The bad old days. As in 1873, 1884, 1890, 1893, 1896, 1907, 1914, 1929, and George Bush’s America.
