As market players and regulators sort through the credit crunch wreckage, there are two main questions: (1) Is the worst over for the markets? and (2) What regulatory actions are needed to prevent this from happening again? In the short time since the Fed helped JP Morgan Chase bail out Bear Stearns in an effort to prevent a systematic financial system failure, markets seem to think the worst is over–even though plenty of credit landmines still exist. As for regulatory actions, there’s plenty of evidence that the 1999 repeal of the Glass-Steagall provision which prevents commercial banks from owning investment banks led to credit market troubles.
Now there’s a mad rush to re-regulate, but it’s important for lawmakers not to overstep because we don’t necessarily need an overhaul, perhaps just some modernization of existing regulations we’ve been leaning on in recent months. As everyone knows, regulators spend as much or more time fundraising than they do writing legislation, so there’s plenty of overhaul-the-system talk. But as Slate’s Daniel Gross points out, financial regulations from the Roosevelt era are very relevant to solving our existing problems.