Courtesy of Pam Martens
Wall Street On Parade holds great respect for Paul Krugman as an economist. We link regularly to his columns under our “Publisher’s Must Reads”. But every time Krugman posits on Dodd-Frank financial reform or the crash of 2008 he blunders into the quagmire created by financial reporter Andrew Ross Sorkin’s misinformation campaign in the pages of the New York Times.
Take this past Monday for example. Krugman devoted his column to the spending bill just passed by Congress that guts a key derivatives provision of the Dodd-Frank financial reform legislation, writing that “One of the goals of financial reform was to stop banks from taking big risks with depositors’ money. Why? Well, bank deposits are insured against loss, and this creates a well-known problem of ‘moral hazard’: If banks are free to gamble, they can play a game of heads we win, tails the taxpayers lose.”
So far so good. Krugman then continues: “Dodd-Frank tried to limit this kind of moral hazard in various ways, including a rule barring insured institutions from dealing in exotic securities, the kind that played such a big role in the financial crisis. And that’s the rule that has just been rolled back.”
Again, spot on. But then Krugman steps into Andrew Ross Sorkin’s illusion of what actually happened in 2008, writing: “Now, this isn’t the death of financial reform. In fact, I’d argue that regulating insured banks is something of a sideshow, since the 2008 crisis was brought on mainly by uninsured institutions like Lehman Brothers and A.I.G.”
Regulating insured banks is a sideshow? Nobel laureates can’t go around saying things like that for very long before their academic colleagues start to roll their eyes and the Nobel folks start to wonder if there’s some way to rescind the prize.
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