Obama's Tepid Support For The Consumer Protection Agency
July 13, 2009
In mid-March, the administration proposed that toxic assets could and would be safely removed from banks balance sheets. I was skeptical, and the the PPIP now seems to have slipped into irrelevance (loans; securities). But the administration still put an impressive effort into persuading independent analysts, and broader public opinion, that they should do something clearly beneficial for banks. This was "all hands on deck," and it definitely had an impact on the debate, at least for a while. Now, the administration's major remaining initiative is its version of a Financial Product Safety Comm
Blame The G8 For Energy Speculation
July 10, 2009
The G8 summit was obviously disappointing, even for those with low expectations. Usually, the substance is lacking but the public relations are well managed. This year even the messaging was messed up--they said some new things on climate change but not what we were told they could say, the food aid/development package was lamer than advertized, etc. So the whole thing looks like an expensive flop. But actually it was much worse. I've written elsewhere this week about the G8's broad decline in legitimacy and appeal relative to the G20 , and the specific pressing issue of cross-border resolutio
July 08, 2009
Congress's attempts to deal with the housing crisis this spring created surprising rifts within the financial industry, particularly between big banks and investors (at hedge funds and elsewhere).
The Case Against The G8
July 08, 2009
The G7 was originally conceived as a form of steering committee for the world economy (antecedents). Existing formal governance mechanisms, around the IMF and the UN, seemed too cumbersome (and too inclusive) during the 1970s, with the breakdown of fixed exchange rates, assorted oil shocks, and the broader shift of economic initiative towards Western Europe and Japan. And the G7 had some significant moments, particularly with regard to moving exchange rates in the 1980s. More broadly, behind the scenes, it served as a communication mechanism between the world's largest economies ("coordinatio
A New Direction For The Fed?
July 07, 2009
Policymakers like to make particular kinds of statements at a "low attention" moment, e.g., right before a holiday weekend. This gets items onto the public record but ensures they do not get too much attention. And if you are asked about these substantive issues down the road, you can always say, "we told you this already, so it's not now news"--usually this keeps things off the front page. Released on July 3rd (a federal holiday), and buried inside the Washington Post on Saturday (p.A12): An important speech (from June 26th) by the New York Fed's controversial President, William C.
July 03, 2009
How many times have you heard that the key to reviving the economy is fixing the banks? The thinking usually goes: If the banks are fixed--if bad loans are taken are taken off the books, and if regulations are put in place to prevent risky new loans--then they will resume lending to consumers who will buy cars and homes, and to businesses that will invest in plants and hire new workers. That's probably why Washington has spent the last six months proposing bank reforms, but not worrying about whether the first stimulus adopted is going to be sufficient. In my opinion, that's a mistake.
Why We Need a Second Stimulus
June 26, 2009
Our country’s unemployment rate, which has risen every month this year, now stands well above the worst case scenario of the Treasury Department’s stress tests. Yet we are inundated each month with reports that, in spite of a rising rate of unemployment, the slump has "bottomed out” or is even over.
Did Bank Lobbyists Write Obama's Reform Proposal?
June 18, 2009
What is the essence of the problem with our financial system--what brought us into deep crisis, what scared us most in September/October of last year, and what was the toughest problem in the early days of the Obama administration? The issue was definitely not that banks and non-banks could fail in general. We're good at handling some kinds of financial failure. The problem was: a relatively small number of troubled banks were so large that their failure could imperil both our financial system and the world economy. And--at least in the view of Treasury--these banks were so large that they cou
What To Think About Obama's Regulatory Reforms?
June 17, 2009
There are three views on who exactly is behind financial regulatory reform package that has just been presented. Each view has distinct implications for political dynamics going forward. The first view is that Tim Geithner and Larry Summers have genuinely become radical reformers. They see the error of the ways they pursued during the 1990s--both in terms of financial deregulation for the United States and in their advice to other countries, particularly through the capital market liberalization policies urged upon the IMF. They now seek to put globalized finance back in its box and will pursu
Writing in the Washington Post this morning, Tim Geithner and Larry Summers outline a five point plan for dealing with the underlying problems in our financial system, titled "A New Financial Foundation." The authors are not completely clear on what they think caused the current crisis, but you can back out some points from their reasoning--and the implicit view seems quite at odds with reality. Their view: Regulation is overly focused on safety and soundness of individual banks. Reality: There was a complete failure of safety and soundness supervision. This must be fundamental to any financ