Sunday, June 20, 2010

Help Prevent a Sequel. Delay Some Pay.

by Robert J. Shiller in The NY Times

CONGRESS’S approach to financial reform has been a bit like my own household’s response to a moth infestation in our kitchen a couple of years ago. After we got over the initial shock, my wife and I responded rapidly, disposing of food in which moths were breeding. Then we broadened our focus, throwing away items that had passed their expiration date or were no longer needed. Then we made a list of things to buy and went shopping.

But, in retrospect, we neglected something important. We didn’t take control of the crisis by finding where the moths came from, or figuring out how to prevent their return. (Just two weeks ago, we found another infestation.)

How does that compare to the federal response to the financial crisis?

Well, now that we’re past the initial phases of crisis management, Congress has a chance to address the underlying issues in a fundamental way. Unfortunately, though, the reform bills approved separately by the House and the Senate — and now in conference committee — deal with the crisis by offering a host of little cleanups and shopping lists. The cumulative effect would certainly be positive, but the current versions wouldn’t really prevent a repeat of the mess.

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