Leading economist (and often liberal hero) Paul Krugman, just wrote a piece about the financial industry and it’s a good insight piece. There were some squabbles at the Democratic debate over regulating Wall Street and the banking industry, but who has the toughest/best plan? According to Krugman, that candidate is Hillary Clinton.
Senator Bernie Sanders is often seen as the one who is toughest on Wall Street, having made a career over going after them and critiquing the rich. However, prestigious economist Krugman has taken a thorough look at the financial industry as part of his work and has analyzed the plans and rhetoric from presidential candidates. So what does he say?
In regard to their respective plans, Krugman says: “For what it’s worth, Clinton had the better case.” He says this because Senator Sanders has been focused on bringing back Glass-Steagall, a law that required commercial banking and securities activities be separated. Krugman thinks repealing this law was a mistake, but he doesn’t believe it is what caused the financial crisis of recent memory. Instead, he places blame on shadow banking. These are the sentiments Clinton echoed in Tuesday’s debate. But what is shadow banking?
Shadow banking is basically defined as:
“The financial intermediaries involved in facilitating the creation of credit across the global financial system, but whose members are not subject to regulatory oversight. The shadow banking system also refers to unregulated activities by regulated institutions.”
An example of this, according to Krugman, is Lehman Brothers. They don’t take deposits but can cause chaos when they fail. Hillary Clinton has laid out a plan to address the problem of shadow banks, but Sanders has yet to do so.
To be fair, this issue can be complicated and Hillary seems to understand its complex nature, having correctly identified what actually caused the most damage at the end of Bush’s presidency. However, he is quick to point out that nothing firm will be done if Republicans control Congress; this is another crucial point.
In closing though, Krugman makes it clear that any of the Democratic nominees would still be better than the Republicans. While Krugman thinks Hillary has the better plan, he says that the differences between she and Sanders are “trivial” compared to the Republicans.
Featured image by Go Banking Rates, available under a Creative Commons Attribution-Noncommercial license.
