Rebuild the pillars of 1930s Wall Street

Sometimes an interesting paper doesn’t do much more than provide empirical confirmation of what basic theory would predict. For example, Thomas Philippon and Ariell Reshef have a paper (PDF) illustrating the point that the relative wage in the financial sector tends to track the relative education level of the personnel:

Josh Rosner of Graham Fisher testifies before a subcommittee of the House Financial Services committee today on why Dodd Frank has not ended too big to fail, but also has managed to entrench the megafirms’ advantaged position. Rosner provided Congressional testimony on this same topic in 2011, and deemed Dodd Frank’s plans for winding down systemically important firms to be unworkable. Rosner has good company here; the BIS and the international bank lobbying group the IIF reached the same conclusion.

Viral Acharya, Thomas F. Cooley, Matthew Richardson, Ingo Walter, 12 July 201122 July marks the first anniversary of the signing of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, the most comprehensive US regulatory effort for financial markets since the 1930s. This column introduces an eBook analysing where the regulatory process stands after one year and where it is headed. Full Article: Dodd-Frank: One year on…

Arjun Jayadev at Triple Crisis provides a quote from Thomas Phillipon that somehow never sees the light of day in the financial press: …the unit cost of intermediation is higher today than it was a century ago, and it has increased over the past 30 years. One interpretation is that improvements in information technology may have been cancelled out by increases in other financial activities whose social value is difficult to assess.

ByTom Dorsey:The Dodd-Frank Act was designed to set high standards and create an environment that would prevent a repeat of the 2007-08 financial disaster. The Basel III requirements were designed to force big banks to hold enough capital to sustain a recession or market downturn that would put banks in jeopardy of the 'too-big-to-fail' scenario.

By Simon Johnson Proponents of the status quo in the financial sector just cannot catch a break.  Early August is supposed to be a time when regulators and markets slow down, or perhaps even take a break, but this year the news continues to be dominated by mismanagement or worse inside complex financial institutions. It’s time for a new approach to bank capital.  As proposed by two U.S. Senators, this is not a panacea, but it would have a dramatic effect on big banks and how they operate.

By Simon Johnson.  This post comprises the first three paragraphs of my latest Bloomberg column; you can read the full column there.