Preemptive Strike

October 30th, 2011 at 12:09 am

This WaPo editorial has a good, generally supportive discussion of the “Volcker rule,” a component of the financial reform law that disallows commercial banks, insured by the FDIC, from betting their own book on the market.

“The rule’s purpose…is to keep banks, whose deposits are federally insured, from taking excessive risks based on the funding advantage that they get from implied government support.”

In passing, the piece makes a point that I assure you will soon to become a talking point among the amnesiacs who want to gut financial reform.  In applying the rule, “10,000 U.S. banks may eventually spend a combined 1.8 million hours a year [on compliance]…”

The thing is, the costs of implementing financial regulation need to be weighed against the costs of not doing so, i.e., the impact of the financial instability and recession caused (in part) by the absence of adequate controls on this type of speculation.

So when I read the part about 1.8 million hours, I wondered how many hours of work had been lost in the Great Recession.  And the answer is:

16 billion hours.

So yes, the new rules of financial regulation will take some time to implement.  But if they help to prevent the next meltdown, they’ll be well worth it.

(Source: BEA, NIPA table 6.9, difference in annual hours, 2007-09)

 

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5 comments in reply to "Preemptive Strike"

  1. sven says:

    The 1.8 million hours sounds impressive in a vacuum but in context they don’t mean much.

    If there 10,000 banks then 1.8 million works out to (gets out laptop)

    (square root of the… check the natural log… Lagrange multiplier…)

    about 180 hours per bank.


  2. Peter says:

    Yup, 180 hour per bank. 22 1/2 person days. I weep for them. Buckets and buckets of tears for the untenable burden of this regulation.


  3. pjr says:

    The $1.8 million hours translates into about 1000 jobs. How many jobs have we lost because of these banks?

    Robert Reich calls for breaking up the big banks. Maybe if each bank were broken into 10 banks, executive pay could be divided by 10 (or more) at each. Do it.


  4. Fred Donaldson says:

    The 1.8 million hours is $14.4 million dollars in salaries at the preferred rate for unemployed MBAs ($8 an hour – clerk value).

    We have a hedge fund manager who made $185,000 an hour last year – so the $14.4 million represents less than two weeks of his earnings (taxed at 15%, no less).

    Numbers mean nothing, unless put into perspective.


  5. Bruce Ross says:

    That amounts to full-time work — more or less — for 900 lawyers.

    I wonder how many attorneys those banks employ today.


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