Engine of Inequality

Chapter 8Reckoning with Regulation

The recent financial crisis might have provided the occasion to develop a new economy, more attentive to ethical principles, and a new regulation of financial activities that would neutralize predatory and speculative tendencies and acknowledge the value of the actual economy. Although there have been many positive efforts at various levels which should be recognized and appreciated, there does not seem to be any inclination to rethink the obsolete criteria that continue to govern the world. On the contrary, the response seems at times like a return to the heights of myopic egoism, limited by an inadequate framework that, excluding the common good, also excludes from its horizons the concern to create and spread wealth, and to eliminate the inequality so pronounced today.

– The Vatican*

Myopic egotists? I shall leave it to the Pope to judge the souls of financial regulators. Although many I know are dedicated public servants, all the evidence in earlier chapters does lead one to conclude that, if not egotists, then some of those in charge are at least myopic. Unconcerned with the impact of financial policy on economic equality, US regulators concluded that the US financial system was resilient because all of the post-crisis rules made banks safer even as the post-crisis financial system increasingly dispensed with banks. As this chapter will demonstrate, this bank-centric policy not only exacerbated monetary policy's anti-equality impact, ...