Federal Reserve System

Pajamas Government
September 23, 2009

The congressman is nearly in tears--his face crumpled and voice cracking. This was hardly the response that I anticipated when I asked freshman Democrat Alan Grayson a banal question about adjusting to life in his new job. "Personally, it's extremely difficult for me to be away from my family," he started. That's when he started to swell. As he came unglued, I cast a nervous glance at his aide. The least she could do was hustle him from this awkwardness.

How I Became a Keynesian
September 23, 2009

Until last September, when the banking industry came crashing down and depression loomed for the first time in my lifetime, I had never thought to read The General Theory of Employment, Interest, and Money, despite my interest in economics. I knew that John Maynard Keynes was widely considered the greatest economist of the twentieth century, and I knew of his book's extraordinary reputation. But it was a work of macroeconomics--the study of economy-wide phenomena such as inflation, the business cycle, and economic growth.

Do I Dare Defend Paulson Again?
September 22, 2009

Yes!  Steve Weisman over at The Peterson Institute posted a nice riff yesterday about James Stewart's recent New Yorker piece reconstructing the week Lehman collapsed. His (and Stewart's) conclusion? Hank Paulson screwed up massively: My takeaway is that while Lehman executives were oblivious to the warning signs over the imminent failure of their storied investment firm, Treasury Secretary Henry Paulson may have increased the odds of a Lehman collapse by taking a hard line opposing a government role in its rescue.

Worth Reading
September 22, 2009

Fed may be preparing markets for the beginning of a wind-down. NYC charter schools are closing the Scarsdale-Harlem achievement gap. Thanks to industry vigilance, credit scores can suffer even without missed payments. Will job growth be here sooner than we think? More doubts about the universality of the Long Tail theory. Why the dollar might be not replace the yen as the carry trade currency of choice.

Why the Status Quo in Consumer Financial Regulation Stinks
September 22, 2009

In my cranky item yesterday arguing against a proposal for consumer financial regulation being floated by a group of Blue Dog Democrats, I mentioned the problem with combining consumer regulation and safety and soundness regulation of banks (that is, the status quo the Blue Dogs basically want to preserve), and with putting a big council of regulators rather than a single agency in charge of the former (that is, the way the Blue Dogs want to make the status quo much worse). It turns out that, over the weekend, a group of prominent consumer law professors sent a letter to the leadership of the

Worst. Regulatory. Proposal. Ever.
September 21, 2009

It sounds like various Blue Dogs on the House Financial Services Committee aren't keen on the proposed consumers financial products agency. Their preferred alternative? A "council" of regulators to oversee consumer financial protection. Politico's Victoria McGrane has the details: Blue Dogs and other conservative Democrats — uneasy with a key element of President Barack Obama’s plan to regulate Wall Street — are rallying around an alternative proposal that scraps the consumer financial protection agency the president has been pushing. Rep.

What Will Bernanke Do With His Second Term?
September 20, 2009

Ben Bernanke has a great opportunity to lead the reform of our financial system. His standing in Washington and on Wall Street is at an all-time high, as a result of his bailout/rescue efforts. He is about to be reappointed with acclaim for a second term as chairman of the Federal Reserve’s Board of Governors. And he has a lot to answer for. Look, for example, at his speech of May 17, 2007, which discusses some of the problems in the subprime market and contains the memorable line: “Importantly, we see no serious broader spillover to banks or thift institutions from problems in the subprime ma

Is Treasury Courting Inflation?
September 16, 2009

Deborah Solomon and Jon Hilsenrath at the WSJ inform us that, in order to keep from hitting the $12.1 billion trillion debt ceiling, the Treasury Department is winding down a one-year-old program it created to borrow funds on behalf of the Fed: Since last year, the Treasury has been selling special short-term securities and placing the proceeds in an account at the Fed.

Worth Reading
September 15, 2009

Bernanke joins the "recession is over" crowd. Fed unlikely to cut back on mortgage purchases. Does Krugman's target Robert Lucas actually agree with Krugman? John Cochrane and Luigi Zingales say gov't indecision created post-Lehman crisis. Fed study: 33% of companies issuing short-term debt experienced runs on it beginning in Aug '07. Noam looks at how China keeps tabs on its biggest investment: the U.S.

Obama and the Ghost of Louis Brandeis
September 15, 2009

President Obama’s speech yesterday was disappointing. As a diagnosis of the problems that let us into financial crisis, it was his clearest and best effort so far. He didn’t say it was a rare accident for which no one is to blame; rather he placed the blame squarely on the structure, incentives, and actions of Wall Street. But then he said: Our regulatory reforms will fix that. This is hard to believe. And even the president seems to have his doubts, because he added a plea that--in the meantime--the financial sector should behave better. The audience was composed of our financial elite, but