What he thinks it means

His anecdote does not mean what he thinks it means.

Krugman is trying to make a case for regulation and uses a fictional story where "Gatewood is in fact skipping town with a satchel full of embezzled cash."


How does regulation fix this? But the real question is, does embezzlement make the bank stronger or weaker? In other words, isn't the act itself self regulating?


He even admits...

[money-losing mistakes] in itself is no reason for the government to get involved.

But then asserts...

But banks are special, because the risks they take are borne, in large part, by taxpayers and the economy as a whole.

Further he asserts that banks are special because of destructive panics. So, why don't we unspecial them by not having taxpayers bail them out. Ever consider that? Wouldn't it be better for panics to be small and local rather than systemic and threatening not just our nation but the world. Let them fail and become smaller. Not propped up for even greater future damage.


So not able to actually make a case he asserts...

It’s clear, then, that we need to restore the sorts of safeguards that gave us a couple of generations without major banking panics.

Which is like saying, "let's hold back all the little earthquakes that relieve pressure on the economic fault lines. Let's make sure that when the big one finally does hit it takes down everything."


Losing money is how economics regulates economic decisions. Trying to take that away with regulations just makes things worse. Failure is a good thing. It's what made America a world power.


Krugman thinks he's smarter than reality. He isn't.