Reforms Won't Prevent Another Bank Crisis

Financial reforms moving through Congress won't save us from paying for another banking crisis.
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Senior contributor Peter Morici appeared on the "PBS Nightly Business Report" Monday and commented on financial reform. The following is a text of the script.

Financial reforms moving through Congress won't save us from paying for another banking crisis.


Federal Reserve

has put the kibosh on abusive mortgages. But the proposed Consumer Protection Agency would bend to populist sentiments for easy credit and lean on banks to create new questionable loans.

So much focus is on derivatives that insure mortgage-backed securities but it was those instruments, not derivatives, that first instigated the crisis.

Before the crisis, Treasury and other agencies knew about structured investment vehicles where the banks park mortgage-backed securities, but saw no danger.

A Systemic Risk Council, headed by Treasury, can't make regulators clairvoyant.


Goldman Sachs

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hearings in the Senate were great theater, but little in the new regulations will stop Wall Street from creating new weapons of mass destruction.

Resolution authority to break up big failing financial firms is also a non-solution.

In the recent crisis, Treasury found it impossible to sell off the good pieces of


(C) - Get Report



(AIG) - Get Report

to quickly get back taxpayers' money. But selling off good pieces is exactly what resolution authority requires.

Real reform would separate banks from the Wall Street casinos and cut the biggest banks down to size.

Neither Republicans nor Democrats have the stomach for that. Instead, Congress rearranges the chairs on the deck of the Titanic.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.