Another Example of Unintended Consequences

Arnold Kling has a post at the AEI blog entitled “Regulating Risk.”   He answers the question of why long-term interest rates are so low.  He writes:

It is not “quantitative easing.” It is not a mysterious shift in preferences among savers. It is that banks, which enjoy enormous advantages in attracting funds from savers due to actual and perceived protection offered by governments, have a strong incentive to direct these savings into financial instruments that their regulators have designated as having little or no risk. Risk-based capital regulations may be ineffective at promoting bank safety. But they are plenty effective at allocating capital away from productive private investments and toward government bonds.

Politicians are never satisfied with either leaving things alone or making incremental changes to measure their impact. Rather they pass (or attempt to pass) massive, comprehensive legislation because they dream of having their name on a bill which will be discussed in high school government classes twenty years from now.

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