House of Cards
Daniel Press is featured in a letter to the editor of Harpers Magazine:
Despite Andrew Cockburn’s assurances in “Swap Meet” [Letter from Washington, January], the claim that proprietary trading caused the financial crisis is highly disputable. The government’s study of the crisis, conducted by the Financial Crisis Inquiry Commission and the Federal Deposit Insurance Corporation, found no evidence that proprietary trading caused the crash. Paul Volcker himself admitted that his rule, which put restrictions on this type of trading, would not have prevented the crash alone. (The Volcker Rule also exempted US government securities from the restrictions, which suggests that the Treasury sees some value in proprietary trading.)
Cockburn is right, however, that banks should not exploit their implicit government backing to make risky investments. But if Congress really wants to deal with this problem, it would do better to reform the government guarantees that shift banks’ risks to the taxpayer rather than increasing regulation. Relying on thousands of pages of rules to manage the financial system will remain a fruitless exercise as long as the government continues to subsidize banks’ risky bets.