Last Sunday, legislators and the president, convinced that the United States was facing an imminent risk of default and their sound decisions were needed to wrest global well-being from the jaws of collapse, purportedly scrambled to announce a deal on the debt ceiling hours before the Asian markets opened. Instead of cheering the deal, however, global markets thumbed their nose and turned down within hours of the announcement.
There were many factors that led us to the financial crisis of 2008—dangerous derivatives, irresponsible ratings agencies, negligent regulators—but one was more important than the rest. We now know it as the “too big to fail” problem. What brought the economy to the edge of disaster wasn’t only that financial institutions had made rash bets on lousy investments, but that those institutions were so massive that when their bets went bad, they threatened to take the rest of the economy down with them.
Modern quantitative finance presents unique opportunities for smart people to run amok. But we have not fixed our financial system, or reined in the h
Simon Johnson and Peter Boone: Obama's impotent assault on Wall Street.
The White House background briefing is that their proposals would freeze biggest bank size “as is”--this makes no sense at all. Twenty years of reckless expansion, a massive crisis, and the most generous bailout in human history are not a recipe for “right” sized banks. There is a lot of work the administration hasn’t done on the details--this is a classic policy scramble, in which ducks have not been lined up.
Update: the Senate needs to hold a new hearing for Ben Bernanke--here’s the full proposal. Ben Bernanke’s reconfirmation as chair of the Federal Reserve is in disarray. With President Obama having launched, on Thursday morning, a major new initiative to rein in the power of--and danger posed by--our leading banks, key Senators rightly begin to wonder: Where does Ben Bernanke stand on the central issue of the day? There are three specific questions that Bernanke must answer, in some convincing detail, if he is to shore up his weakening cause in the Senate. (1) Does he support the President’s pr
Paul Volcker, legendary central banker turned radical reformer of our financial system, has won an important round. The WSJ is now reporting: President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country’s biggest banks, marking the administration’s latest assault on Wall Street in what could mark a return--at least in spirit--to some of the curbs on finance put in place during the Great Depression. This is an important change of course that, while still far from complete, represents a major victory for Volcker--who has been pushing firmly for e
At this stage in the electoral cycle, Democrats should be running hard against big banks and their consequences. Some roots of our current economic difficulties lie in the Clinton 1990s, but the real origins can be traced to the financial deregulation at the heart of the Reagan Revolution--and all the underlying problems became much worse in eight years of George W.
On the first day of the Financial Crisis Inquiry Commission, Phil Angelides demonstrated a gift for powerful and memorable metaphor: accusing Goldman Sachs of essentially selling defective cars and then taking out insurance on the buyers. Lloyd Blankfein and the other CEOs looked mildly uncomfortable, and this image reinforces the case for a tax on big banks--details to be provided by the president later today. But the question is: How to keep up the pressure and move the debate forward? If we stop with a few verbal slaps on the wrist and a relatively minor new levy, then we have achieved basi