Alex Tabarrok, on Senator Warren's proposal to resurrect the Depression-era Glass Steagall legislation.
Separate commercial and investment banking? Please. The problem was that investment banking, in the form of shadow banking, become so separated from commercial banking that the Fed no longer had any idea where a majority of credit was being generated. Credit creation separated from banking as understood by the Fed, and moved into the shadows, hence, the term shadow banking.
Glass-Steagall would merely shuffle around organizational boxes in the less important regulated banking sector. Indeed, why would anyone think that 1930s policy is the solution to a 21st century problem?
Indeed. Senator Warren strikes me as the worst kind of Senator: interested in sound bites that play well on TV and in blogs but have little relevance to actual problems and solutions.