Peerless and Periled: The Paradox of American Leadership in the World Economic Order

We need to recognize that risk does not respect national borders. We need
to prevent national competition to reduce standards and encourage a race
to higher standards. … To match the increasing global markets, we must
ensure that global standards for financial regulation are consistent with the
high standards we will be implementing in the United States.

—US Treasury Secretary Timothy Geithner, congressional testimony,
26 March 2009

IN HIS LANDMARK BOOK MANIAS, PANICS AND DEPRESSIONS, first published in 1978, Charles Kindleberger concluded that financial crises are “hardy perennials” in the world economy. The Great Crisis bolstered efforts around the world to make that remark history. With the crisis hastily traced to shortcomings in financial regulations and their enforcement, regulatory reform emerged as Washington’s main means to placate taxpayers enraged by costly bank bailouts. The political backlash required culprits; lined up were Wall Street bankers and their Washington regulators.

The result of the greatest financial regulatory reform since the Great Depression, the 2, 319-page Dodd-Frank Act creates an oversight council to monitor the entire financial sector, regulates newer market players such as hedge funds and private equity firms, and establishes a process for unwinding floundering banks in a more orderly fashion. It also seeks to tame “too-big-tofail” banks, curb bankers’ bonuses, and bar credit-default swaps, once called by Warren Buffett “financial weapons of mass destruction.”

The reforms should be judged both by the degree to which they meet their objectives—prevent future crises and extricate the taxpayer from the burden to bail out banks when crises do occur—and by their potential for promoting open, competitive, and globalized financial markets, something the United

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