financial markets - THE RIDGEWOOD BLOG.

by LARRY KUDLOW
January 29, 2016 7:30 PM

Because it is completely misreading the situation. Early in the new year, on Sunday, January 3, Federal Reserve vice chair Stanley Fischer delivered a hawkish speech to the American Economic Association.

Completely misreading the economy, which is woefully weak while inflation is virtually nil, Fischer strongly hinted that the Fed would be raising its target rate by a quarter of a percent every quarter for the next three years.

The next day the S&P 500 dropped 1.5 percent. In the week that followed, the broad index fell 6 percent. The week after that it fell over 2 percent. During that two-week period, the Dow Jones dropped 1,437 points.

The dollar went up. Oil plunged 21 percent. Raw-material commodities dropped. And credit risk spreads in the high-yield junk market rose substantially. Actually, it was a global event, as stock markets around the world plunged. Utter chaos.

Norbert Michel ,CONTRIBUTOR

I follow the evolution and devolution of monetary and financial policy

Opinions expressed by Forbes Contributors are their own.

Why do I write so much about the myth that financial market deregulation caused the financial crisis? Because that false narrative has spread so far and wide. Even some folks who are otherwise friendly to free-markets have bought into it.

So here’s one more shot: financial markets were not deregulated in any meaningful way during the last 100 years.

It is true that federal regulators changed many rules and regulations over the century, but the notion that the new rules amounted to a lack of rules is dead wrong. Federal regulators have increasingly told banks and non-bank financial firms what they can do and how they can do it.

Last week, when discussing this topic, my friend Mark Calabria mentioned some evidence I had missed: Todd Conover’s Congressional testimony in the 1980s.

Conover was the head of the Office of the Comptroller of the Currency (OCC) from 1981 to 1985, and his 1984 testimony (all 655 pages) is available on the St. Louis Federal Reserve Bank’s website. The testimony is yet another piece of evidence that banks were not deregulated.

But it also serves as evidence that Dodd-Frank and the new Basel III capital rules’ emphasis on so-called macro-prudential regulation is not as new as regulators would like us to believe.

As they tell the story, the new regulations will make markets safer because now, finally, regulators will focus onsystem-wide safety (a macro-view) as opposed to focusing only on the safety of individual banks.

https://www.forbes.com/sites/norbertmichel/2015/08/10/the-financial-deregulation-that-never-was/

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