My latest blog post is up at the Sun-Sentinel. My dad gets credit for this idea. He was wondering the answer to this question, so I did a little digging through the research. It isn’t a very rich literature, but the few papers in it (especially the Fama one) are very strong.
The only thing I’d add to this post is to say that financial regulation should function like insurance. It costs money for firms to pay for insurance, and those costs may get passed along to you in the form of higher prices. But you’d probably prefer that than having the company go bankrupt because they get caught in a catastrophe without insurance coverage. Good financial regulation is supposed to prevent crises, but it’s only fair that the firms pay the taxpayers insurance premia in advance. We did, after all, just bail them out quite generously.
I was debating two different conclusions, so here’s an alternate ending:
This is good news for the Obama administration. Of course, it would be better news if that money came out of bankers’ salaries, but don’t worry: They’re working on that.
Don’t forget to read the original post.