2) Lowi outlines three major types of public policies in his chapter. Find an interesting newspaper article that outlines a policy that seems to fall into one of these categories. It's ok if the policy has some components of all types, but it must represent one of the three policy types for the most part.
The following article talks about the new lending regulations and the creation of a new agency to oversee the financial services industry. The new agency would oversee mortgages and other consumer loans along with monitoring financial institutions compliance with all relevant laws. This one agency will be the sole bank regulator.
http://www.chicagotribune.com/business/all-lazarus.7027416sep20,0,6025816.story
This article talks about the reforms in a little more detail.
http://www.chicagotribune.com/topic/kstu-obama-seeks-new-financial-rules,0,7693519.story?page=1&obref=obinsite
The regulation intends to tighten oversight, limit risk-taking at the largest firms and introduce higher capital requirements. Critics believe Obama is working on the right issues, but the proposed changes will not prevent another crisis. The changes required to prevent another crisis would face strong political opposition.
These reform measures are a regulatory policy. Clearly, this legislation will regulate the behavior of banks and other financial institutions handling consumer loans and mortgages. The law also introduces consumer protection measures, which may reduce or expand the alternatives of private individuals. The articles do not provide a lot of details regarding the actual proposals in the reform bill; although I did not go to the Thomas.gov website to review the bill. The reform will likely raise the cost of doing business for those in the financial services industry. The proposed legislation will likely include stricter penalties for non-compliance.
This is a broad law that applies to all businesses participating in the banking and mortgage industries and all individuals are impacted by the bill in the same way. Interest groups (e.g. the United States Chamber of Commerce Center for Capital Markets Competitiveness) are majorly involved and trying to kill this legislation. The legislation impacts the financial services sector of the economy.
Just wanted to point out that the financial services industry is hardly unregulated. Bank activities are regulated, but obviously those leading to the crash and continued distress caused the problem. Insurance companies also have stricter requirements and must meet higher standards compared to other financial services companies. Usually, an insurance company that fails goes into a type of receivership overseen by the applicable state insurance department. Other insurance companies would take over the liabilities of the failed insurance company. This ensures the promises made to afford coverage are still kept.
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"The changes required to prevent another crisis would face strong political opposition."
ReplyDeleteWhat might the changes that would prevent another crisis look like? And why would they face such strong political opposition?
Would they be more sweeping or broad in nature and so change too much too soon? Or are the changes you feel to be truly important so different or new to be politically untenable. Your statement was intriguing to me and might touch some of last week's conversations around incrementalism. Thanks for the analysis.
Ian
Hi Diane,
ReplyDeleteDo you agree that the proposed reform bill will help prevent another financial crisis?
In my opinion the governement intervention may prevent another type of crisis if one were to occur in the exact same manner, but I believe that business will not continue as it was, with or without government intervention, and therefore this reform may be too late. I feel policy makers should be looking instead for ways to help support the financial industry in the new direction it is headed on its own.
In this specific case I feel the government may not be capable of leading the financial industry in the right direction, and may be causing more problems than good by intervening with such strong regulations. As you pointed out these regulations will be costly for business and I feel they could also slow or even halt business. This type of interference is the last thing our economy needs right now.
Thanks for your comments regarding this post. In many ways, stronger regulation is needed to prevent the abuses from happening again. The proposed reform bill may help prevent a similar financial crisis. Having one sole bank regulator would make the regulation process easier.
ReplyDeleteOne problem with the government bailout was they didn't seem to put enough restrictions on who got the money and how it would be used. Obviously, any government restrictions placed on the funds would not supersede other legal agreements in place, like employee compensation agreements.
The financial services industry is probably best led by the professionals in this industry. However, government can be a facilitor of improvements by working with these professionals to improve everyone's financial security. Government also needs to put tougher laws and penalities in place to prevent a similar crisis.
Steps need to be taken to make those companies that are "too big to fail" smaller, so tax payers don't need to foot the bill if they do fail. Of course, there have been problems when government has broken up companies in the past.
I wish the articles were a little more specific about what the suggested provisions were. Reading the actual law gets pretty tedious.