Merton and Scholes on Dodd Frank

Referee Finance Team

An interesting interview of Robert Merton and Myron Scholes on Dodd Frank.

"Scholes says it is obviously important to understand institutions, but that such understanding is a very “tactical” piece of knowledge. “What you really want to think about is what’s driving it,” he says. Those drivers included government coordination that forced “all the different players to line up together in the same direction.” The government also created a “feedback loop” of guarantees, in which guarantors are guaranteeing some entity that is in turn guaranteeing the guarantor."

" Merton says other problems – such as the need to fix the accounting regime or the forces driving correlation of assets – are more important than the problems with proprietary trading."

Read the interview there.