This summer I was on a driving tour around the Turkish capital city, Ankara. About half way through the day, an economist friend of mine pointed out a rather imposing structure: “That’s the Bureau of Economic Planning.” Internally reflecting on some of Turkey’s recent economic troubles, I quipped back, “And how’s that working out for you?”
Last week, chairman of the Senate Banking Committee, Chris Dodd (D-CT), revealed his plan to overhaul Wall Street regulations. And while the plan isn’t quite on par with Soviet-style economic planning, it would not be hyperbole to equate the regulatory structure he proposes with some of the more dire policy proposals pursued by politicians in the collapsing world of Atlas Shrugged.
Of particular interest is Dodd’s proposed Agency for Financial Stability. This is the widest reaching proposal for dealing with systemic risk. The AFS would be able to break apart big firms, keep firms from growing too large, and restrict any activity it deemed harmful to the system. The Obama/Geithner plan suggested an Oversight Council made up of the regulators, chaired in Treasury but using the Fed to do its dirty work. The GOP has asked for a toothless board that would just make suggestions. Bernanke has testified that the Fed is capable of handling the role of systemic risk overseer on its own.
The AFS is probably the worst of the proposals to deal with systemic risk. And the rest of his plan is similarly problematic. I’m going through it now and will have a breakdown out by the end of the week. It doesn't quite amount to a Turkish economic central planning center, but it's not exactly free market either.