Former Fed Chair Alan Greenspan in today’s Financial Times: The financial system on which Dodd-Frank is being imposed is far more complex than the lawmakers, and even most regulators, apparently contemplate. We will almost certainly end up with a number of regulatory inconsistencies whose consequences cannot be readily anticipated. Early returns on the restructuring do … Continue reading Dodd-Frank
The Treasury has been spinning TARP as a victory in the months leading up to midterm elections. I have a lot of respect for Elizabeth Warren (former Chair of the Congressional Oversight Panel for TARP, currently helping in the early work for the Consumer Finance Protection Agency she promoted) and the work she has done on … Continue reading TARP: Too Early to Spin a Victory?
In the months leading up to the passage of the financial reform legislation, Congress decided to segregate the issues of financial regulation and the government sponsored enterprises (GSEs) that were central to the collapse. Now that Dodd-Frank is in the bank, Congress and the White House are turning to Freddie and Fannie, the two GSEs that … Continue reading When Reform Isn’t Reform
Freddie and Fannie are in the news again. Freddie is currently seeking an additional $1.8 billion in funding (to be added to the $160 billion that has already been spent on the two government sponsored enterprises or GSEs). This recent news has led me to pose an account of how a standard political choice story … Continue reading From Political Exchange to State Vampirism: The GSEs
As commentators begin to read the Dodd-Frank Wall Street Reform and Consumer Protection Act, they are discovering some hidden gems. The most recent discoveries: Diversifying the Portfolio (via Carrie Budoff Brown at Politico): Congress gives the federal government authority to terminate contracts with any financial firm that fails to ensure the “fair inclusion” of women … Continue reading What’s in the Sausage?
Even though the President should have been able to claim some political credit for the financial regulation legislation (regardless of its ultimately efficacy), defeat was once again snatched from the jaws of victory. The White House became embroiled in the USDA’s firing of Shirley Sherrod, losing control of the news cycle. As WaPo noted: Remember … Continue reading FinReg, Sherrod and the Attention Cycle
The President is scheduled to sign the 2,315 page Dodd-Frank Wall Street Reform and Consumer Protection Act at the Ronald Reagan building today, July 21, 2010. His prepared remarks read: These reforms represent the strongest consumer financial protections in history. And these protections will be enforced by a new consumer watchdog with just one job: … Continue reading Financial Regulation Update
I have been working through the stack of books I have accumulated in the wake of the global financial crisis. One of the best, completed on a rather long set of plane rides (thank you Delta for serial delays) was Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial … Continue reading This Time is Different?
Financial reform continues to make its way through the legislative sausage maker as conferees desperately seek to meet the administration's July 4th deadline. As noted in earlier postings, the body created by Congress to investigate the causes of the crisis as a means of informing the legislative process continues to hold hearings in hopes of … Continue reading Regulation Redux
The Recovery Summer is well underway. Vice President Biden sought to rally the troops in the Milwaukee stop of his Recovery Summer tour by noting: "there's no possibility to restore 8 million jobs lost in the Great Recession." Today, a sharp drop in the Conference Board's Consumer Confidence Index have sent markets into a triple-digit … Continue reading Recovery Summer
This today from the WSJ: Federal Deposit Insurance Corp. Chairman Sheila Bair said bank regulators would have the tools they need to banish "too big to fail" institutions from the financial landscape once a Wall Street overhaul bill becomes law. ...Ms. Bair said that new powers allowing regulators to seize and liquidate failing institutions would … Continue reading Scary metaphor of the day
Damian Paletta (WSJ) has a summary of the conference committee’s final agreement on the new financial regulations. There is nothing all that surprising here: expansion of regulation (with a few politically expedient exemptions and some revenue sweeteners). Rep. Jeb Hensarling (R., Texas) is quoted in the above story as saying: "My guess is there are … Continue reading Financial Reform: “You can’t fix what you can’t explain” continued
This week, House and Senate conferees are working out the details in what will likely be the most significant financial regulatory reform in some time. Should the new Consumer Financial Protection Bureau be housed in the Fed? Should the Volcker rule be universally applied? Should banks really be required to spin off their derivative activities? … Continue reading Financial Reform: “You can’t fix what you can’t explain.”
This week should be remarkably interesting for those following the financial reform legislation. Among the big issues on the table include the so-called derivatives “push out” (forcing banks to spin off their derivative trading activities) and the “Volcker rule” that would prohibit proprietary trading at banks. Silla Brush (the Hill) has a quick summary of … Continue reading Making Sausage
During and after the financial panic of 2008, we were exposed to a host of economists trying to explain the market meltdown, what should be done about it, and how we might avoid repeating it. Some of the leading lights in the discipline weighed in on the market problems. Now we have a reform proposal … Continue reading Wanted: An economics of fear
I have a somewhat different take on the financial legislation passed by the Senate than that presented by Jim Otteson, although I agree with his argument. Here is my take: The New Deal era financial regulations created several separate financial industries, each governed by its own set of regulators and insulated by regulatory barriers to … Continue reading Financial Regulation: Another Take
For many observers, it seems obvious that the roots of the current recession lie in the crisis in the banking sector. In the Economist’s Voice (a non-technical, yet academic, electronic journal), Robert Barbera attacks University of Chicago Economist Casey Mulligan and other real business cycle theorists for having a framework that cannot either predict or … Continue reading When the Obvious isn’t Obvious
The NYT has this story on how manufacturers, auto dealers, and the Chamber of Commerce are lobbying against the proposed derivatives exchanges and new consumer financial protection agency in the financial reform bill. It seems to me that they're right to be concerned. Industrial firms, apart - apparently - from U.S.-owned automakers, are not treated … Continue reading Industrial Firms Lobbying Against Financial Reform
I'm referring here to Paul Krugman's column today. The ratings system in the financial sector has been a complete pile of crock. As Krugman noted, 93% of AAA-rated subprime-rated mortgage securities are now junk. How often should a AAA-security end up as junk? Clearly there has been huge systemic failure in this area. I'm a … Continue reading Occasionally he is right about something
Arnold Kling at EconLog echoes my skepticism a few days ago about predatory lending. This is from his post on the proposed financial reform legislation: Finally--and this will get me in big trouble--I have to rant about the notion of a consumer financial protection agency. I know that it's axiomatic that poor people are helpless … Continue reading Kling on Predatory Lending
President Obama gave a rousing speech today on the proposed financial reforms. We know that financial regulations can bring far greater stability to the economy. Even Milton Friedman and Anna Jacobson were forced to acknowledge that the FDIC “succeeded in achieving what had been a major objective of banking reform for at least a century, namely, … Continue reading What if Regulation Isn’t Enough?
Now that health care reform has passed, attention will turn to other initiatives. Financial regulation is already moving briskly ahead, although we have to wait and see whether the regulatory changes actually address the problems at the heart of the financial collapse. Call me skeptical. There are competing ways of understanding the collapse. Let me … Continue reading Now that the health crisis is over, on to finance?
Punishing fraud is good. But is the role of government to protect the greedy from themselves?