I heard this informative story on NPR yesterday and was struck at how it parallels what Superintendent Dixon has managed to pull off. It explains why it will be effectively impossible to regulate our nation’s finance industry.
Big banks are able to massage their regulators to get the best deal, just as Dr. Dixon has massaged his regulators from the state to the city to get the Red Plan approved. On the national level this “arbitrage” eventually undermined the whole economy just as Dr. Dixon’s work has capsized the power of local voters. If The words in this paragraph could just as easily apply to what happened in Duluth.
“Economists say this kind of problem stems from regulatory arbitrage. When more than one regulator oversees the same kind of activity, financial firms find ways to play one off against the other. It’s like what every 4-year-old has figured out — if Mommy won’t let you, maybe Daddy will. Or worse, if Mommy thinks Daddy is watching you, and Daddy thinks Mommy is watching you, then you can get away with anything.”
When I was a little kid I discovered politics at its most basic when I asked my Mother for cookies and she said “no.” Instead of giving up I asked my Dad (without telling him what Mommy had said) and he said “yes.”
This is Dr. Dixon’s modus operandi. Just like the Duluth voters who thought two years ago that someone would surely intervene; Dr. Dixon’s regulators were all waiting for some other regulator to restrain his impossibly grandiose scheme. No one stepped forward and today civil war rages in Duluth.
