Good Note on Financial Regulation

In an article in the Guardian, economist Dean Baker notes that Timothy Geithner has been pretty much inside everything that has happened in financial regulation in the past decade or so, and it gives him gas:

Geithner was in the middle of all this [the Robert Rubin aggressive strong dollar policy that evicerated US manufacturing], even if not a lead actor. While this should not be forgiven – this recession and the millions of lives that are being ruined is not funny – it is not clear that Obama had very much choice.

Though he does acknowledge that there may not have been much of a choice:

In this respect, Obama faced the same sort of problem as those hoping to de-Ba'athify Iraq following the overthrow of Saddam Hussein. It would have been almost impossible to establish a government without including members of the Ba'ath party, since membership was a virtual requirement for holding a position of responsibility under Saddam.

Similarly, it would have been almost impossible to get to the top echelons of power, or even the middle ranks, during the Clinton-Bush years without giving lip service to the policies of one-sided financial deregulation and bubble-driven growth that were so fashionable at the time. The real question is whether Geithner has learned anything.

(emphasis mine)

I would that there are some bigger questions to ask in all of this:

1. Is part of the problem that the financial services industry became too large relative to the rest of the economy?
2. Did this create excessive exposure for the rest of the economy to downturns of increasingly speculative activities?
3. If 1 and 2 are true, how do you go about shrinking the financial services industry.