In Johnson and Kwak’s “13 Bankers” they talk about breaking up banks that are “too big to fail,” and they also mention that the best way to do this is through a solution that is “economically simple, so it can be effectively enforced”. This is an interesting concept but one I agree with. What is being suggested is that if determining if a bank is too big is too complicated than it is not going to be enforced. When a bank gets to be the size where it should be broken up, it is going to do everything in its power to stop that from happening, and it will have a lot of power.
This leads into another interesting point, that in situations like this it is hard to trust the regulators. Why should rules even be created when we can’t even trust the people enforcing those rules? Except we can trust them, as long as it’s not a judgment call. When you put a hard number into play, like what Johnson and Kwak are suggesting, then it is more likely to be enforced, the regulators can’t get away with any funny business, and businesses will be less tempted to try and bend the situation to get around the rule.
This lesson can be learned by all lawmakers. Although in today’s day and age it is tough to make simple laws to govern complex situations, when laws start to get too complicated they become harder to enforce. When we allow the enforcers of the law to make judgment calls we invite in the opportunity for corruption.
I’m am also not suggesting that all businesses are bad and are just looking to bend laws to make more profit, but giving them the opportunity to do so, isn’t helping. Most of us wouldn’t go out of our way to steal money but if we found a wad of cash in an alley we would definitely be tempted to keep it. Now I know that is an extreme example but the idea still applies. In the end, when laws are simple, they are easily enforced, and everyone plays by the rules.