As the Lehman anniversary approaches, defenders of the financial sector struggle into position--partly in response to your comments (also here). They offer three main points: We need finance to make the economy work. Financial innovation delivers value, although it’s not perfect (but what is?). Don’t kill the goose that laid the golden egg. Point #1 is correct, but this does not necessarily mean we need finance as currently organized. The financial sector worked fine in the past, with regard to supporting innovation and sustaining growth. Show me the evidence that changes in our financial str
So I think I agree with pretty much every point Paul Krugman makes in yesterdays' Times magazine about where economics went off the rails. Including his big prescriptive point: Economics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system. If the profession is to redeem itself, it will have to reconcile itself to a less alluring vision — that of a market economy that has many virtues but that is also shot through with flaws and frictions. The good news is that we don’t have to start from scratch.
How did certain economists spot the bubble in advance? WaPo: "90 percent of all new home loans are funded or guaranteed by taxpayers". UK was this close to shutting down troubled banks' ATMs during height of crisis. Recession may be ending, but credit crunch is still here. Better late than never? Greenspan says banks need higher capital requirements.
I'm coming a little late to Sheila Bair's intriguing Times op-ed from last week, but I think Tim Fernholz basically got it right over at The Prospect: Bair wasn't kvetching about the administration's regulatory proposals--the kind of thing that got her in Tim Geithner's crosshairs a few weeks back. She was taking aim at even more radical proposals for regulatory consolidation, like what Sen. Mark Warner lays out here. Basically, the administration wants to fold the underwhelming Office of Thrift Supervision (OTS) into the Office of the Comptroller of the Currency--the two agencies that regula
It's big news. The top news in the Sunday Times, columns five and six right under the logo. No, the banks have not been chastened. And Jenny Anderson's article tells you just how little they have learned. This is a traffic in the odds of death. Or the odds on the proximity of death. Ms. Anderson has a very clear description: The bankers plan to buy 'life settlements,' life insurance policies that ill and elderly people sell for cash—$400,000 for a $1 million policy, say, depending on the life expectancy of the insured.
Treasury's proposal to increase capital requirements on banks around the world won't be loved by the financial sector, but the rest of us should give it strong consideration. There's little chance more capital would have prevented the crisis, but it would have made the ride down a lot less bumpy.
Matt Yglesias and Karl Smith question Bill Galston's claim that the 1980's to the mid-2000's was a period which saw an orgy of personal consumption. From large flat-screen TVs and i-phones to furniture and foreign cars, Americans spent as though there were no tomorrow, until tomorrow came. Galston bases his argument on the much repeated statistic that personal consumption is 70% of GDP.
Loan losses are putting FHA reserves at risk. Track the economy with Google search trends. Banks should be charged for subsidies like deposit insurance. Can market-making and proprietary trading go hand in hand? Edmund Phelps on John Rawls and economic justice.
Apologies for the light posting this week--I was working on a big piece that will be out soon. I'm going to take a longer look at the new job numbers before deciding if I stand by my ten-percent unemployment prediction. But, in the meantime, here are two nuggets that caught my eye: 1.) Commercial real estate continues to worry me a bit, and the jobs report flicks at the reason why: In August, construction employment declined by 65,000, in line with the trend since May. Monthly losses had averaged 117,000 over the 6 months ending in April.