Regulating Our Brave New Post-stress Test World
May 19, 2009
This week the administration begins a serious behind-the-scenes charm offensive on its regulatory reform plans. The argument seems to be: we are where we are on banks' solvency/recapitalization, so let's not argue about that; it's time to strengthen financial regulation in line with our G20 commitments. But there is a serious dilemma lurking behind the foreshadowing, the rhetoric, and the talking points. (Aside to Treasury: please find somone other than big financial players to endorse your next 100 days report; many taxpayers will find p.5 of your first report particularly annoying--if you d
Why The Stress Test Leaks Have Been So Confusing
May 06, 2009
The public relations campaign packaging the bank stress tests is kicking into high gear and our professional information managers are really hitting their stride. They face, of course, a classic spin problem: you need to get the information out there, but you don't want to be too definitive on the first day or soon after--if you're easy on the banks, that looks bad; if you're tough on the banks, that might be dangerous. The best way to handle this is by jamming your own signal--which they are starting to do in brilliant fashion. To the WSJ you leak that BoA needs to raise a great deal of capit
What Treasury Needs Is A Distraction
May 05, 2009
The bank stress tests are beginning to create a perception problem, but not--as you might think--for banks. Rather the issue is top level Administration officials' own optics (spin jargon for how we think about our rulers). At one level, the government's approach to banks--delay doing anything until the economy stabilizes--is working out nicely. This is the counterpart of the macroeconomic Summers Strategy and in principle it is brilliant.
Treasury: Regrets, I've Had A Few
April 22, 2009
If you haven't picked up on one of the dozens of recommendations from other blogs, I recommend reading Phillip Swagel's long and detailed account of the view of the financial crisis from his seat as assistant secretary for economic policy at the Treasury Department. It's particularly useful for people like me who make a habit of criticizing government officials. The writing is dry, but much of the subject matter is fascinating. It often explains or defends Treasury's actions during the crisis, but Swagel certainly owns up to plenty of mistakes or shortcomings.
Bring In The Antitrust Division (on Banking)
April 16, 2009
In early February I suggested there was a showdown underway between the US Treasury and the country's largest banks. Treasury (with the Fed and other regulators) is responsible for the safety and soundness of the financial system, the banks are mostly looking out for their own executives, and the tension between these goals is - by now - quite evident. As we've been arguing since the beginning of the year, saving the banking system - at reasonable cost to the taxpayer - implies standing up to the bankers. You can do this in various ways, through recapitalization if you are willing to commit
March 24, 2009
Simon Johnson is a professor at MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. He is co-founder of the global economy website, BaselineScenario.com. The administration’s media rollout of the Geithner Plan was as meticulously coordinated as a Super Bowl Sunday. In future courses for doctors of spin, there will be a special session on the administration's dogged attempt to get everyone together and work every segment of its increasingly fragmented viewership.
Whistling Past The Graveyard
March 16, 2009
Simon Johnson is a professor at MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. He is co-founder of the global economy website, BaselineScenario.com. Expectations were low for this weekend's G20 meeting of finance ministers and central bank governors. Despite that, we should be disappointed with the outcome. There was no substantial progress on any policies that will help pull us out of a severe recession. The U.S.
The Slightest Glimmer
March 08, 2009
In light of the week's terrible economic news we asked Simon Johnson, a professor at MIT's Sloan School of Management, a Senior Fellow at the Peterson Institute for International Economics, and co-founder of Baseline Scenario, if there were any reasons, any at all, to feel hopeful. Here's what he wrote. The most dangerous thing in any economic crisis is denial. West European countries are still refusing to come to grips with the new (downward-looking) realities in East-Central Europe and what that means for their banks and their fiscal solvency.