This chart from Princeton's Hyun Shin is the best illustration I've seen of the unsustainability of the boom in the securities sector: In absolute terms, most sectors grew by a factor of 80 between since 1954. But, at its peak, the non-commercial-bank financial sector had grown by a factor of 800. From Shin: The greater detail afforded by the chart in log scale reveals that the securities sector kept pace with the rest of the economy until around 1980, but then started a growth spurt that outstripped the other sectors.
Could the Dems lose the House in 2010? Keynes' "General Theory" was all about rational expectations. And he was right that you could spend your way out of a recession. Significant outflows from mutual funds even as stock prices rise. A primer on how insurance companies make money. Death bonds ain't no mortgage-backed securities.
Just wanted to follow up on my earlier comparisons of Obama and Bush's approaches to trade with two more data points. Both come care of this sober-minded look at recent tariff trends from the DLC. First, if you look at all the temporary tariffs (i.e., the kind Obama just announced for Chinese tires) imposed in the world between 2000 and 2008, you see that the number in 2008 was well below the average across all those years (155 versus 189). Not so in the United States, though.
The headline news from the G20 summit in Pittsburgh is that progress has been made on "IMF reform," meaning increased voting power for emerging markets relative to rich countries--remember that West Europeans are greatly overrepresented at the IMF for historical reasons. But further change in a sensible direction is being blocked by the U.K.
Felix Salmon calls me out for arguing that securitization might not be to blame for the decline in lending standards. If lending standards dropped at the same time as the securitization rate soared, I’d say there’s a strong correlation between the two, and a pretty good prima facie case for a causal relationship too. I actually agree with Felix here. As I'll explain, it's hard to argue that lending standards didn't decline because of the introduction of securitization.
I've spent part of the week complaining about the way community banks are trying to gut the administration's consumer financial regulatory agency even though, in principle, they stand to benefit. (Short explanation: Community banks excel at getting to know their customers, building relationships with them, and vetting their loan applications carefully, not by trying to screw them.
Treasury inspector general says unlikely that U.S. will profit from bailouts. Volcker criticizes Obama finacial regulation plan. Prepared testimony from Volcker, Cochrane, Levitt and others on House hearing on systemic risk. Business school applications are levling off this year. Why there might not be a jobless recovery. The inequity of Congress's plan to extend jobless benefits.
Although higher capital requirements do seem like a no-brainer, Andrew Kuritzkes and Hal Scott offer some words of caution in the FT: The five largest US financial institutions subject to Basel capital rules that either failed or were forced into government-assisted mergers in 2008 – Bear Stearns, Washington Mutual, Lehman Brothers, Wachovia and Merrill Lynch – had regulatory capital ratios ranging from 12.3 per cent to 16.1 per cent as of their last quarterly disclosures before they were effectively shut down.
You read something like this and you kinda maybe start to think the ratings agencies are, if far from blameless, then perhaps a necessary evil. But then you go and read something like this piece in yesterday's Wall Street Journal and you're embarrassed for having entertained the thought. Per the Journal: Despite months of regulatory scrutiny and some internal changes at the firms, a recently departed Moody's Corp. analyst says inflated ratings are still being issued.
Stiglitz/Sen commission on flaws in GDP as measure of social health issues final report. Richard Posner discovers Keynes. Someone is actually defending the rating agencies. Oil discoveries are on the rise. John Tierney writes up the US-EU longevity gap study that I had some problems with. The United States of McDonalds.