Simon Johnson

Credit Conditions In The Absence Of Consumer Protection
August 10, 2009

Even some of our most sophisticated commentators doubt a link between consumer protection and any macroeconomic outcomes. Consumer protection, in this view, is microeconomics and quite different from macroeconomic issues (such as the speed and nature of our economic recovery). Officially measured interest rates are down from their height in the Great Panic of 2008-09 and the financial markets, broadly defined, continue to stabilize. But are retail credit conditions, i.e., the terms on which you can borrow, getting easier or tougher? On credit cards, there's no question: it's getting more expen

TNRtv: Should Geithner Have Told Regulators To F*ck Off?
August 05, 2009

Simon Johnson, professor at MIT's Sloan School of Management, senior fellow at the Peterson Institute for International Economics, and co-founder of BaselineScenario.com, offers support for Treasury Secretary Timothy Geithner's expletive-laden outburst against financial regulators, arguing that their selfish opposition to Obama's plan is putting us all at risk. --Ben Eisler Check out the latest on TNRtv: Sherman: Is China Finally Sticking It To North Korea? Johnson: How To Deal With Thieving Mortgage Lenders Eisler: When Lawmaking Gets Bloody

The Dark Side Of Behavioral Economics
July 29, 2009

Richard Posner is against the proposed new Consumer Financial Protection Agency (CFPA). This is, of course, not a surprise.

Who's Afraid Of Consumer Financial Protection?
July 28, 2009

The debate over re-regulation of the financial sector has finally, and irreversibly, turned partisan. This helps define issues in ways that may be more familiar and thus easier to understand. In the blue corner we have Treasury Secretary Tim Geithner. Secretary Geithner's overall banking policy continues to be problematic, and his broader re-regulation effort is hampered by all the free passes he gave to bank CEOs earlier this year. But on consumer protection he has the right message and he delivered it forcefully to Congress last week: we need a Consumer Financial Protection Agency (CFPA) and

Secretary Geithner's China Strategy: A Viewer's Guide
July 27, 2009

On Monday and Tuesday of this week, Treasury Secretary Geithner--and Secretary of State Clinton--meet with a high-level Chinese delegation. According to official previews (i.e., the apparent contents of background briefings given to wire services), the economic topics are China's concerns about the value of the dollar (i.e., their investments in the U.S.) and the amount of debt that the U.S.

After Peak Finance
July 24, 2009

There are three kinds of "bubbles"--a term often used loosely when asset prices rise a great deal and then fall sharply, without an obvious corresponding shift in "fundamentals." A short-run bubble. Think about 17th century Dutch Tulip Mania: spectacular, probably disruptive, but not a major reason for the decline of the Netherlands as a global power.  A distorting bubble. In this case, the increase in asset prices contributes to a reallocation of resources across sectors. Think of the Dot-com Bubble: fortunes were made and lost, the collapse was scary to many, and--at the end of the day--you'

Jamie Dimon Vs. Larry Summers
July 19, 2009

Jamie Dimon has won big. JP Morgan Chase now stands alone, both in financial position and political clout--including special access to the White House and, as explained in today's NYT, Rahm Emanuel's likely attendance at his next board meeting tomorrow.  Dimon's semiotics have been brilliant throughout the crisis--it wasn't his fault, he was forced to take TARP money, and--in phrasing that will make the history books--bankers should not be "vilified." But now he has a problem. Larry Summers forcefully stated Friday that high recent profit levels for big banks (i.e., JPMorgan and Goldman) are b

The New Banking Order
July 17, 2009

Hank Paulson's testimony yesterday was informative, if only because it illustrated that he himself still understands little about the origins and nature of the global crisis over which he presided. Perhaps his book, out this fall, will redeem his reputation. A fundamental principle in any emerging market crisis is that not all of the oligarchs can be saved. There is an adding up constraint--the state cannot access enough resources to bail out all the big players. The people who control the state can decide who is out of business and who stays in, but this is never an overnight decision written

Cit Down
July 16, 2009

At the end of the day, CIT had nothing. Their asset quality was poor, their systemic risk implications seemed limited, Sheila Bair dug in her heels, and Jeffrey Peek (CEO) didn't have sufficiently strong connections to get her overruled. CIT had friends, but not enough--and maybe this tells us something about the shifting political sands. The Financial Services Roundtable (top financial CEOs) came out in force, the House Committee on Small Business reportedly made worried noises, and Barney Frank sounded supportive. But the American Bankers Association (the broader mass of bankers) publicly st

What Hath The Stress Tests Wrought?
July 15, 2009

The issue of the day is obviously CIT. It's hard to sort out the real news from clever PR/planted stories in this situation, but it looks like the FDIC is coming out strongly against being involved in a rescue package. Given Sheila Bair's successful political positioning and strong popular appeal, it's hard to see how--once dug in--the FDIC can be moved. The lobbying frenzy has concentrated on CIT's role in financing small and medium-sized business; "the recession will be deeper if CIT fails" is the refrain. This is a weak argument--it would be straightforward to refinance this part of CIT's b

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