Aaron Greenspan
August 2011

Abstract

In 2008, a global financial crisis second only to the Great Depression shed light on the utterly dysfunctional system of financial regulation governing the United States. A cacophony of laws and agencies, charged with regulating retail and investment banks, ultimately failed to prevent (and ultimately accelerated) an epic economic disaster that required enormous taxpayer bailouts of private enterprise, sunk two investment banks (Lehman Brothers and Bear Stearns), imploded an enormous insurance provider (A.I.G.), leveled the American auto industry (General Motors and Chrysler), and destroyed the student loan and mortgage industries, among many, many others. Drafted quickly
amidst the wreckage, the Dodd-Frank Financial Reform Act was supposed to solve many of the problems that had led to the crisis. Today, the reality is that it has solved almost nothing, while introducing significant new problems.
Three years later, business is conducted in the same exact way that it was in 2008. It is more important than ever for consumers to have alternatives to financial products and services offered by the very same banks that only a few years ago brought the global economy to its knees, but such alternatives barely exist. In forty-six states and Washington, D.C., offering stored value and money transmission services is illegal without licenses that are virtually impossible for a single new company to obtain.

Money transmission laws that differ from state to state have completely escaped the notice of policy makers in Washington, but they are the single most important bottleneck preventing positive change from taking hold in America’s financial system. With the nation facing yet another recession and already-high unemployment, such change is urgently needed.

This paper examines the present state of money transmission regulation in the United States and the ramifications thereof.

Felix Salmon comments on this paper HERE.