Redstate

Posted at 9:40am on Mar. 24, 2008 The Next Wave of Economic Policy Decisions

You Can't tell the regulations without a scorecard

By blackhedd

As we swing into a new workweek, the financial markets are on edge, even with rumors afoot that JPMorgan Chase will consider quintupling their offer to acquire the Bear Stearns Companies to $10 a share.

Among the key elements in the news background is a continuing sharp fall in commodities prices (gold, oil, and industrial metals are all down again this morning). I told you about this here.

And flying well under the news radar, the last few days have seen some exceptional disruptions in the overnight interbank repo market (that's the market in which banks get the money they need to make loans and honor withdrawals). One of the key rates is this market is the interest rate you would pay if you wanted to borrow money overnight using a three-month Treasury bill as collateral. This rate literally became negative late last week.

What does that mean? It means banks don't want to lend money to each other. You couldn't ask for a more textbook illustration of a credit crisis.

What I wanted to talk about this morning, however, is the changing landscape for government policy as it relates to management of the financial system. There are at least two new major policy initiatives making the rounds in Washington. In a word, regulation is making a comeback.

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Posted in Economy | federal reserve | Glass-Steagall Act | regulation | shadow banking system — Comments (29)/ Email this page » / Read More »