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For Financial Reform, First Define the Problem

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MEMO TO CAPITOL HILL
At the Free Exchange blog, Ryan Avent pens a thoughtful analysis on financial reform, and he's not convinced that the current process for approaching reform is working. "I've also found myself thinking that if financial sector growth is so good for the real economy it ought to be easier for its defenders to demonstrate this empirically. Sure, one can find financial innovations that seem helpful and posit how the general process of growth and innovation in finance could be good for growth, but the costs of a large financial sector are extremely apparent while even the most ardent backers of financial innovation have a difficult time explaining how economic performance would have been harmed by restrictions on financial activity. Obviously, finance has made a lot of people rich, but that's not the same thing as being good for growth on net. It shouldn't be that hard to tease out some evidence of truly positive effects, and yet no one is out there making a compelling quantitative case. That should probably tell us something."
SOURCE:   Economist

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